FINAL-SALARY pension schemes are a dying breed in the private sector, and the majority have already keeled over.
They are now generally only afforded to public-sector workers – and many of those have to contribute.
Ineos workers have enjoyed what one expert called a "Rolls-Royce" deal, which gave them a pension of 1/60th of their final salary for every y
ear worked without contributing a penny.
Tom McPhail, head of pensions research at Hargreaves Lansdown, said a worker currently on £50,000 who retired on £60,000 would build up 1/60th of £60,000 – £1,000 – for every year worked.
If they had 40 years of service on retirement – the normal maximum for a final-salary scheme – they would get a £40,000 annual pension.
But Ineos claims this deal is no longer sustainable in today's financial world. Management says it is paying out 25 per cent of its wages bill on pensions and see this rising to 50 per cent in the future.
The firm wants to introduce a contributory scheme for existing employees, which would involve them paying 6 per cent of their salary, phased in at 1 per cent a year from next April.
Under the final version of this scheme, an employee on £40,000 would pay £2,400 a year from their salary – £200 a month – towards their pension and the employer would make up the rest, 19 per cent.
However, new employees would not get access to this and would be invited to join a defined contribution scheme.
Mr McPhail said: "With defined contribution, the employer says, 'I'll put in X per cent. What you get back depends on what the investment yields'. That's much more attractive from an employer's point of view."
John Sansone, practice manager in employee benefits at Towry Law, said in such schemes the employer tended to contribute 6-8 per cent and the employee 3-5 per cent.
The full article contains 332 words and appears in The Scotsman newspaper.
