Unilever UK today reaffirmed its commitment to its final salary pension scheme for existing employees in the UK but announced that it is proposing to close the scheme to new employees.
The decision follows a thorough review of the company's UK pension arrangements. These proposals aim to ensure that the company continues to provide competitive pensions for employees on a sustainable basis, whilst at the same time having greater certainty about the future cost of pensions.
The decision is not related to the current deficit as agreement was reached between the Company and the Trustees on this matter a year ago. Under the terms of the agreement Unilever has committed to make additional payments, including £510m in the three years to April 2008, aimed at eliminating the deficit within eight years.
All proposed changes to the UK scheme will need to be agreed by the Fund Trustees and are subject to consultation with employees.
The proposed new UK scheme for new employees, which is intended to take effect later in 2007, will be a hybrid arrangement. There will be a defined benefit component, based on career average, covering pensionable earnings up to a threshold of £35 000 pa. Above this threshold there will be a defined contribution component. From January 1st 2008, employee members of the existing scheme will be asked to increase their contribution to the Fund from five to seven percent of their salary. Alternatively, they will be able to join the new scheme.
Pensioner members and deferred pensioner members will be unaffected by these proposed changes.
Notes to editors:
In many countries the Unilever Group operates defined benefit pension plans based on employee pensionable remuneration and length of service. The majority of these plans are externally funded. The Group also provides other post-employment benefits, mainly post-employment medical plans in the United States. These plans are predominantly unfunded. The Group also operates a number of defined contribution plans, the assets of which are held in external funds.
In December 2005 Unilever announced the establishment of Univest, a new pension asset pooling vehicle which gives the opportunity to leverage the strengths of Unilever and its national-based pension funds.
Local Unilever pension funds retain full ownership of their assets. All the sub-funds are ring-fenced from one another and enable each individual Unilever pension fund to continue to define its own geographical investment strategy.
Unilever UK Pension scheme members:
- 40 000 pensioners
- 40 000 deferred pensioners
- 7 000 active employees
Market value of the Unilever UK Pension Fund at 1st January, 2007: £5.0 billion
The current UK scheme will be subject to the following proposed changes:
- Contributions will increase from 5% to 7% effective 1 January 2008
- "Guaranteed" pension increases linked to inflation will be capped at 2.5% for pension building up from 1 January 2008. The Company will retain the discretion to grant increases above this limit.
Proposed new scheme
The new UK scheme will have 2 tiers of benefit:
- A pension based on career average earnings, covering pensionable earnings up to a threshold at outset of £35 000. Above the £35 000 threshold, there will be a defined contribution arrangement with a Company contribution of 12.5% of earnings. Employees will alternatively be able to take this Company contribution as cash.
- For this package of benefits, employees will pay at 5% on pensionable earnings up to the £35 000 threshold – no employee contributions are payable above.
Existing members of the UK Pension Fund will have the option to switch to the proposed new scheme.