Nuffield Hospitals is looking to close its final salary pension scheme to future accruals due to the rising cost of providing the plan and to help minimise the risk of future funding shortfalls.
Its Pension and Life Assurance defined benefit (DB) scheme, which was closed to new members last year, will be replaced with a defined contribution (DC) plan from 1 April next year. Members will be able to retain their existing pension pots, which will increase broadly in line with inflation, however, any new contributions will be made on a defined contribution basis.
About a third of Nuffield Hospitals’ 9,370 staff are members of the scheme. The entitlements of pensioners will not be affected.
A scheme valuation on 31 December 2005 in accordance with FRS17 accounting rules calculated that the deficit for the DB scheme stood at £100.8m.
Stuart Best, general manager, pensions, said employer contributions to the DB scheme had reached nearly 20% of salary, with Nuffield Hospitals investing GBP11.8m into the scheme this year. He added that there was a need to protect existing accruals.
"I would emphasise it is not just the level of cost. The costs at the moment are broadly affordable for the employer. The volatility of the cost is inherent in final salary schemes. That was the main driver for introducing a change to the pension provision," he explained.
Employees were notified of the changes in July and had until 30 September to submit their views on them. Nuffield Hospitals is now in the process of evaluating staff feedback and discussing the changes with the scheme’s trustees. It aims to finalise the new DC arrangement in December.
Under current proposals, member contributions will be matched up to 6% of salary, in line with the organisation’s current group personal pension (GPP) arrangement. Members will be asked to contribute either 2%, 4% or 6% of their salary. Employees may also make additional voluntary contributions above 6%, but these will not be matched.
These DC contributions will be made through a salary sacrifice arrangement. Best said the company would reinvest employer National Insurance savings into the pension fund. He added that this would enable the organisation to better predict pension costs, while still providing a competitive pension scheme to staff.
The scheme was last reviewed in 2005 when it was closed to new members and changes were made to its accrual and contribution rates.
However, Best explained that while these changes had reduced employer contribution levels they had not addressed the volatility of the final salary fund.