Employers Question Pension Schemes After Sackings

Events at a City insurance firm have led employers to consider closing pension schemes to current employees, as well as to new employees.

However, employers may have to take drastic action in order to achieve this, as the sackings last March of three employees at the UK’s largest insurance broker, Marsh, demonstrated.

The employees in question refused to accept changes to their pension scheme and therefore refused to sign new employment contracts, which resulted in their dismissal.

The firm hoped to persuade the employees to accept future membership of a ‘career revalued’ scheme rather than their more generous final salary one.

Increased costs of providing the pension scheme, as well as lower returns than expected on investments, were blamed by the firm for its decision to change the scheme, after it was closed to new employees in 2004.

Marsh made the difficult decision to ask its 3,100 employees to accept new contracts once it appeared their old contracts specified an entitlement to the final salary scheme.

The company decide to go ahead with the changes after consulting the firm’s employee forum as well as the trustees of the pension fund. Whilst nearly all staff accepted the changes, three didn’t.

A spokesman for Marsh, Jason Groves, said: “ The consultation process explained the business rationale for the changes and highlighted the competitive nature of the provisions of the revised benefit structure. We are very confident that we remain an employer of choice.”

Whilst dismissing personal on the basis of their refusal to have their pension changed against their will may seem a harsh, it is legal.

Marsh hasn’t been the only firm to go down this route, when in 2003 London law firm Clyde and Co sacked four employees in similar circumstances.

They were dismissed after refusing to accept amended contracts that only gave them membership of a ‘money purchase’ pension scheme rather than the previous and more generous final salary scheme of which they had been members.

The equity partners in the firm, who also owned it and carried the financial risks, had been made aware of the fact that the final salary scheme had a deficit of almost £8m.

This would result in the partners having to cover this deficit out of their own profits and thus end up with a financial liability likely to make it difficult to recruit new partners.

The Employment Tribunal rejected the employees claims of unfair dismissal after deciding the firm had a “ sound, good business reason” for the change.

Cindy Kuo
12/5/06