BMW faces backlash from unions on pension reforms

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Unite called meetings across four sites today to discuss the proposals (Source: Getty)

Unions have hit back at BMW over proposals to close its UK defined benefit pension schemes, promising to fight the German motor giant's attempts to "salami-slice" retirement incomes.

BMW wrote to 5,000 employees yesterday outlining proposals to close its two final salary pension schemes to future accruals from 1 June 2017.

"It is clear that our members will be losing thousands of pounds a year in retirement incomes, if this proposal is allowed to go ahead," said Tony Murphy of Unite.

Read more: Union uproar over ITV plans to close pension scheme

A 60-day consultation period over the proposals begins on Thursday and the union said that it would ballot members on what action to take. Murphy promised that Unite would urge members to oppose the changes.

"Unite will be fighting this proposal tooth-and-claw. It is becoming increasingly too easy for highly profitable multi-national companies to energetically salami-slice workers’ pensions in pursuit of even greater profits."

Closing defined benefit or final salary pension schemes is not an uncommon strategy in the UK for managing growing pension liabilities. According to recent research prepared by consultants Lane Clark and Peacock, 27 of the FTSE 100 companies have already employed such a strategy.

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Closing to future accrual means that any benefits accrued until the point of closure still need to be honoured by the company. While the exact amount that the company ultimately pays out may alter, it effectively freezes the future liability that the company will need to manage.

Thereafter, the company pays into a defined contribution scheme and benefits paid to members will be dependent on market fluctuations rather than being fixed.

Unite said that making this change would mean retirement incomes for BMW workers could decrease as they would be dependent on achieving investment returns rather than a guaranteed payment underwritten by the company.

“BMW is blaming both the increase in national insurance payments and the cost of future liabilities as to why the final salary pension has become unaffordable, although, ironically, profits are still rising in the last two quarters,” said Murphy.

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