CONSULTANCY EMPLOYEES on final salary pension schemes could be asked to increase their payments because of new rules on how pension scheme assets are calculated, Barclays Bank warned this week.
The new accounting rules, which are based in part on the expectation of people living longer, ask companies to recalculate the defiits in defined benefit schemes. In some cases have now trebled.
'The engineering consultancy sector is looking at an overall deficit of at least £500M, more likely approaching £800M, ' said Barclays head of engineering consultancy team David McHattie.
Pension legislation now in force demands that firms wipe out the deficits over the course of 10 years.
Financial Reporting Standard 17 - Retirement Benefits comes into full effect on balance sheets in the 2005/6 financial year.
McHattie told NCE that companies have a range of options to make up the cash.
They can increase lump sum payments to the scheme by either raiding surpluses or increasing borrowings. They can also ask staff to increase their contributions, work longer or accept average salary pensions rather than final salary befinets.
The new pension rules are designed to protect employees in final salary schemes from losing their pensions completely if schemes are wound up because of unmanageable decits.
Consultant Blyth & Blyth's scheme was wound up in 2002 leaving employees with no pension (NCE 23 January 2003), as was the Parsons Energy & Chemicals Group scheme (NCE 30 January 2003).
Consultants have been anticipating the change for the last three years. One of the aims of Scott Wilson's recent flotation was to raise the £20M needed to refinance the company's pension schemes (NCE 9 February).
Atkins finance director Robert MacLeod said his firm had put a £20M lump sum into its defined benefit fund in 2005 and would be doing the same for the foreseeable future in order to reduce a £175M decit.
'We agreed with individuals in the scheme a change in their contributions two years ago. We may or may not have to go back to them. All options are open, ' he said.
Arup is currently consulting with its staff over changes to the pension scheme. It is proposing to increase the retirement age to 65 in line with anti-discrimination legislation so people will be paying into their pensions for three years longer.
'We are consulting with our staff but we believe the changes we are proposing will help us to continue offering a final salary pension scheme to both existing and new members, ' a spokesperson said.
Unlike Arup, most consultants have closed their final salary schemes in recent years.
But the liabilities will be around for 30 to 40 years as final salary pensions are paid out.
'Companies have to plan not only how they are to reduce their current deficits but how to stop them building up again, ' said McHattie.