Provident Financial hikes employee contribution to pension fund

Provident Financial hikes employee contribution to pension fund

	Published : Fri, 23 Dec 2005 20:40 By : David Simms Print this Story

LONDON: Door-to-door lender Provident Financial has asked its employees to double their contributions into the firm's final salary pension plan if they want to stay in the scheme. The staff's contributions will go up from the current level of 7 per cent to 14 per cent. The company said it had consulted the workers on the change and is initiating steps to secure its long-term finances.

The company said it had paid a quarter of its net profits last year to the pension fund to cover the deficit and it had to resort to asking its employees to contribute a higher percentage in order to cap future liabilities. The company had a deficit of 133 million pounds in the pension scheme and by increasing the staff contributions, it hopes to bridge the gap by end-2006.

On an average, U.K. workers opting for final salary scheme are making contributions between 4 per cent and 8 per cent of their salary to the scheme. The final salary schemes have traditionally been seen as the best type of pension a worker can get.

Provident Financial had closed its final salary scheme to new employees in 2003. Some 2,200 of its 3,500 employees are active members of the old scheme. The company said it will allow its workers opting out of the final salary scheme to join a cash balance scheme, which offers an equivalent of 20 per cent of salary credited to the employees concerned every year. While the employee will have to meet 25 per cent of the contribution initially, return from investments and contributions from the employer will provide for the balance.

Provident Financial joins another major company, Rentokil Initial, in making significant changes in the pension schemes to tackle deficits. Rentokil had said it would close its final salary pension scheme to all employees. Nearly 3,000 employees of the FTSE 100 company will have their accrued pension benefits guaranteed, but any future pension will be contributory in nature.

It is estimated that nearly 75 per cent of all final salary pension schemes in private companies are closed to new employees.

General secretary of TUC Brendan Barber, said the unions have demonstrated that they are prepared to sit down and have meaningful negotiations when major changes are proposed to company pension schemes. But in the case of Provident Financial, it sounds like employees have been left with little choice but to accept a doubling of their contributions. "Many may find it tough coming up with the extra cash and ... will have to put up with an inferior pensions deal."