Help, my final-salary scheme has been sold to another company

Help, my final-salary scheme has been sold to another company

These are issues that many more of us are likely to be confronting soon amid predictions of a dramatic acceleration in the number of employers offloading their final-salary pension schemes to escape increasing costs and red tape.

During the past few months, a string of big-name companies have sold their in-house schemes to the new breed of specialist firms. Eight days ago it emerged that Rank, the bingo and gaming group, once a titan of UK filmmaking, had agreed a deal to sell its pension scheme to the UK insurance arm of investment bank Goldman Sachs. A few days earlier, music publisher Chrysalis sold its scheme to specialist pension buyout company Paternoster, which has been in existence for little more than two years and has already acquired the pension funds of shipping giant P&O and media group Emap.

More than a quarter of Britain's largest companies want to offload their final-salary arrangements to rid themselves of pension "risk" so they can concentrate on running the core business, according to a survey published last autumn. The schemes that are sold are usually closed to new members and sometimes to new contributions from existing members, too.

Many.....continued below

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Here we answer some of the questions people are likely to have.

Why are companies so keen to ditch their final-salary schemes?That's not hard to answer: the costs of running them have risen dramatically in recent years, partly as a result of people living longer and stock market turmoil. Most schemes are closed to new entrants, and some are shut to existing members as well. Many companies are desperate to get these open-ended liabilities off their books.

Who are these buyout companies - and are they kosher?Some of them are insurance giants such as Legal & General. There are also a growing number of smaller specialist insurers, led by Paternoster, which has accumulated a portfolio of pension assets worth more than £1.6bn and has an estimated 30,000 scheme members on its books, 80% of whom are retired and drawing their pensions. Its chairman is Ron Sandler, the man chosen by the government to run Northern Rock, and its non-executive directors include former Financial Services Authority boss Sir Howard Davies and ex-CBI head Lord Adair Turner.

Trade unions do not seem overly worried about straightforward buyouts involving insurers. They do have concerns about firms set up specifically to buy companies in order to take control of their pension funds. "There are clearly potential issues around transparency, governance and protection for members in some of these cases," says the TUC. Last autumn, the Pensions Regulator stepped in and appointed three independent trustees to the Telent (formerly Marconi) pension scheme after Telent was bought by London-based Pension Corporation.