Pensions  

BMW plans to close final salary scheme to future accrual

BMW plans to close final salary scheme to future accrual

German car manufacturer BMW plans to close its UK defined benefit pension scheme to future accrual next year, in a move that would affect approximately 5,000 people in Britain.

The plan, which would take effect on 1 June 2017 subject to union consultation, would see those 5,000 employees' future pension contributions going into the company's defined contribution scheme. 

Union Unite signaled on Tuesday (27 September) that it would fight "tooth and claw" against the proposal, and had already organised meetings with representatives in the company's four UK sites.

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Justifying the firm's decision, a spokesperson for BMW said: "Many UK companies have significant pension fund shortfalls in their defined benefit schemes and the cost and risk associated with these schemes is making them increasingly unsustainable and unaffordable for both members and companies. 

"BMW Group has always prided itself in providing excellent pensions for its staff and wants to act now to protect future pension provision for all its staff and to help protect the cost competitiveness of the UK as a manufacturing base."

But Unite's national officer for the automotive industries Tony Murphy disagreed, saying the move would allow BMW increase its profits at a cost of "thousands of pounds" of workers' retirement incomes.

“This is plainly unacceptable and Unite will be fighting this proposal tooth-and-claw. It is becoming increasingly too easy for highly profitable multi-national companies to energetically salami-slice workers’ pensions in pursuit of even greater profits," he said. 

The union described the DC scheme as "relying on the vagaries of the stock market". 

Despite the union's objection, BMW's intention to close its DB scheme puts it behind the curve, with the vast majority already having closed to accruals.

Earlier this month, retail giant Marks and Spencer announced it would close its DB scheme to future accrual.

And according to pension consultancy firm JLT Employee Benefits, just 5 per cent of FTSE 250 companies are still contributing to DB schemes on behalf of a significant number of employees.

A combination of dramatic increases in longevity and persistently low interest rates has made DB schemes extremely expensive to fund, resulting in a chronic deficit problem and a number of scheme failures.

According to pensions consultancy Hymans Robertson, the collective deficit of UK DB schemes now stands at £1trn.

The Work and Pensions select committee is currently preparing to launch an inquiry looking at ways to prevent more DB schemes failing after the high profile collapse of the BHS scheme earlier this year.

BMW, which owns Mini and Rolls Royce, has four UK sites, located in Oxford, Swindon, Hams Hall in West Midlands and the Rolls Royce site in Chichester, West Sussex.