Nissan proposes DB scheme closure as sponsor pressure mounts

The carmaker is claiming that the cost of Nissan Pension Plan has risen to “unsustainable levels”, which prompted the consultation on the closure to future accrual of its final salary plan, a move expected to affect hundreds of workers in its plant in north-east England.

The proposal comes as the carmaker undergoes a major restructuring operation, announcing at the end of May a four-year plan to achieve sustainable growth, financial stability and profitability by the end of fiscal-year 2023.

However, Pensions Expert understands the decision to close the DB scheme was reached independently of the larger drive for efficiencies.

The carmaker recently announced it will centre its European operations at its Sunderland plant, news that came as a relief to its 6000 employees, after anti-Brexit campaigners argued that leaving the European Union would lead the company to relocate to the continent.

But the proposed closure of its DB scheme drew criticism from unions, with Unite branding it “disappointing” and “opportunistic”, and arguing that Nissan’s apparent refusal to offer industry-standard lump sums as a replacement meant the scheme’s closure amounted to a cut to members’ benefits.

“Unite warned (...) that proposed efficiency savings at the Sunderland plant must not be used as an excuse to attack staff terms and conditions,” said Steve Bush, Unite national officer for automotive.

“Due to the timing we see this as an opportunistic attempt to push through long sought-after changes that will have a damaging impact on our members’ plans and financial security in retirement.”

There is no requirement for the employer to make any changes to its proposal as a result of feedback from employees

Rachel Pinto, Herbert Smith Freehills

Acknowledging that Nissan needed to “recalibrate to a changing world”, Mr Bush nevertheless warned the carmaker that “this must not come at the expense of our members’ jobs, terms and conditions or other benefits”.

“Unite will not stand by and let this happen,” he said.

If passed, the move would affect around a quarter of the plant’s 6,000 workers. 

Speaking to Pensions Expert, a Nissan spokesperson stressed that the proposal “is not a short-term action, [but] it is based on the formal valuation of the scheme carried out in April 2018, and is the next step in a long-term process”.

Asked to respond to the criticisms levelled against the company by Unite, the spokesperson reiterated that Nissan aims “to provide competitive benefits to our highly valued staff, but these have to be balanced with the long-term sustainability of our business. The level of company investment needed to maintain the DB pension plan has grown to unsustainable levels”.

Asked whether Nissan might alter the proposal to allay members’ concerns, the spokesperson refused to pre-empt the results of the consultation.

Covid-19 'the last straw’ for DB schemes

The economic fallout from the Coronavirus crisis has prompted employers to seek out means of reducing the cost of their pension schemes, with an estimated 10 per cent of DB scheme sponsors looking to defer deficit recovery contributions and expenses payments. 

Though the Pension Protection Fund’s Purple Book estimates a combined 88 per cent of DB schemes are closed to future members and to new benefit accrual, the need for cost-cutting measures in light of Covid-19 may increase the rate at which sponsors seek to close their remaining schemes, with analysis from Herbert Smith Freehills suggesting the pandemic crisis may be “the last straw” for some employers.

Rachel Pinto, partner at Herbert Smith Freehills, argued that “coronavirus may accelerate that decision for some employers”, but she pointed out that the move away from DB schemes “is a trend we’ve seen for many years now”.

“The primary reason for that is cost,” she said. “DB schemes are expensive for the employer; it’s the employer who takes the funding risk, and the cost is uncertain and can be volatile.”

Employers who want to manage their liabilities and their cash flows, especially in light of Covid-19, may be tempted to look more closely at closing their DB schemes. However, Ms Pinto added, there are a number of considerations that must be accounted for.

“They’d need to check whether their employers have a right to be in a DB scheme in their contract of employment,” Ms Pinto said. “If they do, they’ll need to get employee consent.” 

One potential alternative is to amend the scheme rules, and “to do that they’d need to look at the scheme’s amendment power, to see whether the employer has the power to do that unilaterally or whether they’d need the trustees’ consent”.

Nissan’s announced consultation is a legal requirement, Ms Pinto explained, with the law stipulating that a minimum of 60 days must be set aside for it. During consultation Nissan will be required to give affected employees information “so they can properly understand what the effect of that proposal will be on their scheme benefits”.

At the end of the 60 days, the employer must give due consideration to any responses it received to that consultation. “But ultimately,” Ms Pinto said, “there is no requirement for the employer to make any changes to its proposal as a result of feedback from employees.”