UK – Employees at two of UK consumer services company Centrica’s subsidiaries, energy firm British Gas and the Automobile Association motoring organisation, have become the first to vote for an increase in pension contributions in a bid to keep the final salary scheme open to new entrants.

At a ballot of 28,700 Centrica employees, engineers at British Gas voted 80% in favour of raising their current contribution of 4% to 5% to keep their final scheme open for future colleagues. Staff and road patrol at the AA, voted 93% in favour of raising their contribution level from 5% to 6% to allow their final scheme to remain open for new entrants. The 13,372 employees of the Centrica final salary scheme voted against an increase in contributions.

Centrica had been in talks with Britain’s General Union (GMB) since last June as it was considering closing its three final salary schemes to new entrants and replacing it with a career average salary scheme. A spokesman at Centrica said that the firm had wanted agreement from the unions and employees and decided the most democratic way to decide was to hold a ballot whereby employees could choose a 1% increase in contribution, or closure of the final salary scheme to future employees.

Said the spokesman: “We are happy as members have had their say, and we have also made some savings by closing one scheme to new members and replacing it with the career average salary scheme, and by increasing the contributions for the other two schemes.” Under FRS17 accounting standards Centrica has a total deficit of 583 million pounds in its three final salary pension schemes, although the average employee will not be taking retirement for a further 24 years as the firm has a young workforce.

John Edmonds, general secretary of the GMB said: “Final salary pension schemes are in crisis across the country. The decision taken today by our members will mean a pension they can rely on in the future. This compromise sets a blueprint for other companies thinking of closing their final salary schemes. We cannot afford to let companies close good schemes and let their employees face a retirement of destitution.”

For many companies facing deficits in their pension funds as a result of poor stock market returns, the closure of final salary schemes looks the easiest route towards cutting pensions costs. Unions, however, have strongly protested against such moves.

The vote by Centrica’s employees represented by the GMB is the first time that workers have voted to increase pensions contributions. Indeed, whether the closure of final salary schemes will solve the problem of risings pension costs has been disputed by pension experts.

Peter Bowers, a European partner at Mercer Human Resource Consulting says: "Unless companies have a particularly high staff turnover, such a decision will not significantly reduce their long-term pension liabilities."