Pensions blow at Ernst & Young

ACCOUNTANT Ernst & Young is the latest company to push staff out of a safe traditional pension scheme into riskier retirement plans. The move, made on advice of actuaries Mercer Limited, is the second example within two days of a frightening new trend for workers.

The Daily Mail revealed on Thursday that beleaguered food group Iceland is freezing staff out of its fund. Chief executive Bill Grimsey tells workers in a letter: 'The company intends to implement these changes over the next few months.'

Fears are mounting that actuaries may be advising other big companies to follow suit. E&Y, where Nick Land is chairman, claimed the cost of the pension fund is a risk to the firm. It is freezing benefits from March 2002, upgrading them only in line with inflation up to 5%.

Workers will have to make future payments into a 'money purchase scheme', where their nest egg depends on the performance of the stock market. Many will be worse off because they will lose the link between pension and salary later in their career, when they are likely to be paid the most.

The action by Iceland and E&Y goes further than most other companies. Until now, firms have closed final salary schemes to new staff, but allowed existing members to carry on with contributions.

Unions fear Iceland may go further still and wind up its fund. Terry Savage, national officer of shop workers union USDAW, said: 'It is a major concern.' The unions believe that, after market falls, Iceland's fund is likely to be in deficit. Iceland said: 'We are in discussions with pension fund trustees over what to do with the scheme.'

Last year, Iceland set aside £71m to cover the costs of its pension scheme, wiping out profits of £51.9m, and said annual payments would need to rise from £4m to £14m.