Car manufacturer Nissan is consulting on a proposed switch to a career average scheme to reduce the volatility of its pension liabilities, amid recent and proposed moves to DC in the industry.
The Japanese carmaker’s consultation comes in the wake of BMW moving its final salary scheme members to DC last year. Workers had been on strike but later accepted the change when BMW offered a cash incentive of up to £25,000 a person.
Unite will oppose Nissan Care proposal
Nissan said it is consulting with employees on closing its final salary scheme to accrual and replacing it with a Care arrangement, citing the risks and volatility associated with final salary benefits. About 2,500 of 8,000 UK employees would be affected; DC members will stay in the DC scheme.
It is not uncommon for there to be a switch to DC benefits a few years down the line
Anne-Marie Winton, Arc Pensions Law
The consultation over the Nissan Pension Plan started on January 8 and will run until March 9 this year.
A spokesperson for the company said: “Our proposed defined benefit plan is one of the most competitive in the industry.”
Tony Murphy, national officer at Unite, acknowledged Care is better than closing the DB scheme entirely but said the union is set to fight the plans.
Murphy blamed BMW’s scheme closure for having started a trend towards reduced pension provision in the industry.
“We think a lot of the car companies are looking at what BMW did. It’s always like a domino,” he said.
Compromise or intermediate step?
Anne-Marie Winton, a partner in Arc Pensions Law, said Care schemes were often seen as a compromise between final salary and DC, as they still deliver salary-related benefits but with less risk for the employer.
In 2017, Jaguar Land Rover switched its DB schemes from final salary to Care to improve the sustainability of the schemes while keeping employees on board.
But Winton warned that employers might not necessarily want to stop there. She likened the removal of DB to ripping off a plaster, with employers sometimes putting in Care as a step towards DC to ease the pain.
“It is not uncommon for there to be a switch to DC benefits a few years down the line if the burden of funding the accrued defined benefits becomes too large,” she said.
Care scheme closures seemingly attract less publicity, she argued, although consultations are still required.
Murphy is aware of this. He said Nissan “might come back in another three years, five years – it’s a guessing game. It’s always a concern”.
Bentley consults on closing Care scheme
This week, some of the workers at Volkswagen subsidiary Bentley's Crewe factory demonstrated over a proposed move to DC from a Care scheme.
The recently agreed valuation of the £700m Care scheme had revealed a £500m deficit. A consultation will start on February 19 over changing the benefit structure. About 1,200 members would be affected by any changes.
Helen Gopsill, Bentley’s head of HR for manufacturing and labour relations, said just under three-quarters of all employees were already in a DC scheme, with the DB scheme having been closed to new entrants in 2003.
“It’s been a tough call to get to this point but this deficit, it’s something we feel we have responsibility for to the organisation and to our colleagues,” she said, citing the need to balance jobs with pension benefits in an industry in transition.
What to do before a switch to Care
The governance requirements of a Care scheme are as heavy as for final salary, and trustees still rely on the employer to pay up.
Nicola Rondel, counsel at law firm Hogan Lovells, said Care arrangements can give rise to age discrimination claims, pointing to two recent cases involving Care switches for firefighters and judges.
“But there are ways around age discrimination issues – objective justification is one defence” for employers seeking an exemption to the laws, she said.
Legal advice will be needed by trustees, said Steve Delo, managing director at Pan Governance.
He said the role of the trustees is to ensure that any change is carried out in accordance with the relevant law and the rules of the scheme.
Diageo’s Care scheme proposal highlights struggle over DB provision
Diageo proposed replacing its final salary scheme with a career average arrangement back in 2016.
Delo also highlighted administration as a sticking point.
“Going from final salary to Care introduces a new benefit tranche and… the more tranches, the more challenges for the poor old admin team,” he said.
He therefore advised trustees to probe the administrators’ knowledge and experience of Care.
Delo agreed that Care might not always be the last benefit change a company makes.
“I think some moves to Care may still only be a holding position, with DC back on the agenda in due course,” he said.
“However, I think Care should have a lot of appeal to members, if they can understand it. It is a very valid pensions design option.”
