O2 has proposed to close its defined benefit (DB) pension scheme to future accrual due to the impending cost of auto-enrolment and the poor economic environment.
The scheme, which was closed to new members in 2001, is a legacy scheme that was carried over to Telefonica, O2’s parent company, with BT employees who joined in a demerger a decade ago. Only 10% of the company’s 11,000 employees are in the scheme.
A spokesperson from O2 said: “We’ve worked hard to maintain our final salary pension scheme in its current form. However, external conditions influencing the plan, including legislative changes, tax changes and economic uncertainty, have hampered its viability, and the fact that more of us are living longer is very costly to its funding.
“For those in this scheme, we have put together both a transitional package and a long-term extra level of contribution into the money purchase plan so they can move across in a fair manner to be pensioned in a similar way to everyone else.”
Under the proposed plans, the final salary scheme will close on 28 February 2013, days before O2’s auto-enrolment staging date of 1 March.
Employees will be auto-enrolled into a money purchase plan, which currently has 3,000 members. If staff increase their contributions to between 3-5% of salary, O2 will contribute 6%; a contribution between 6-8% will be matched with a 9% employer contribution; and 9% or more from the employee will be matched with 11.5% from O2.
The spokesperson added: “We want to improve the contributions we make to this plan so that everyone in the plan is better off. Keeping our staff up to speed is vital and we’ve already started the communication process by writing to all our employees explaining what’s happening and what it means for them. We’ll keep them informed throughout the entire process.”
The details are subject to consultation until 25 November 2012.