LONDON - British trade unions went on strike specifically over pensions for the first time this month, landing the first blow in what could be a massive battle between workers and companies over the closure of generous defined benefit schemes.
The unions are also taking aim at Britain's Labour Government, which is seen as exacerbating the situation by not doing enough to encourage companies to keep their defined benefit schemes open.
Hundreds of U.K. companies are either winding up pension plans or closing them to new members as finance directors look at ways at reducing cost and risk.
Workers at ASW Sheerness Steel Ltd., a steel company based in Kent, England, that filed for bankruptcy, last week staged protests outside Parliament over receivers' plans to close down the scheme, which was not fully funded.
Elsewhere during October, members of the Transport and General Workers Union, London, voted to strike over plans by Yuasa Batteries Ltd., Birmingham, England, to close off its defined benefit scheme. And executives at Caparo Group Ltd., a Walsall, England, steel company, reversed its decision to wind up its L160 million ($249 million) defined benefit plan after strike action by the Iron & Steel Trades Confederation repeatedly shut down production in late September.
Finance sector workers are threatening further job action over life insurer Prudential PLC's recent decision to shut its L4.7 billion plan, while unions are taking legal action to prevent accounting group Ernst & Young from winding up its L381 million plan.
A serious issue
"Strikes are starting to pop up all over the country. I think unions have woken up and realized it is a serious issue with very serious consequences," said Julian Richards, head of pensions at Amicus, the U.K.'s second-largest trade union, in London.
The action is just one part of the unions' pensions campaign, launched in September at the annual conference of the Trades Union Congress, the Labour movement's national organization.
At the conference in Blackpool, England, where TUC Secretary John Monks told delegates that all unions "were militants when it came to pensions," the trade unions accused Prime Minister Tony Blair of inaction in solving the so-called "pensions crisis."
Mr. Monks and other leaders are concerned that their union members will be left without adequate pensions if companies continue to close defined benefit schemes in favor of cheaper, less-generous defined contribution plans.
More than half of the companies in the FTSE 100 have already closed their schemes.
"This is now a much wider social problem; there needs to be some kind of response as to how people are going to survive in retirement now," said John Gillies, head of consulting at Frank Russell Co., London.
"Companies are now realizing that corporate solvency can be threatened by pension deficiency. The market boom in the 1990s concealed the reality that there is a real cost (to companies) in the provision of pensions. Higher life expectancy, lower interest rates and lower investment returns means higher contributions for the first time in years," he said.
"Poor markets was not the only factor. New legislation and the FRS 17 changes grabbed the attention of finance directors and chief financial officers," he said.
FRS 17 is the new British accounting standard that forces companies to bring pension liabilities onto the corporate balance sheet and prohibits the smoothing of investment returns over longer time periods. British Airways PLC, London, and a number of other major British companies cited FRS 17 as a factor in their decisions to shut down their defined benefit schemes.
Rising deficits
Watson Wyatt Worldwide, a Reigate, England, actuarial firm, estimated in a recent study that the pension deficits of FTSE 100 companies, on an FRS 17 basis, would rise to L70 billion this year.
"Finance directors (in the past two years) have been educated to the real risks of operating a DB scheme," said Alan Rubenstein, head of European pensions at investment bank Morgan Stanley & Co. International Ltd., London. As a result, the companies are either completely shutting down plans or closing then to new members to limit or eliminate those risks.
Mr. Gillies of Frank Russell said pensions were now at the top of unions' lobbying agenda.
Political analysts said this new union militancy over pensions had become a source of concern for Britain's Labour government. Several trade unions already announced plans to reduce their level of funding to the Labour Party, citing misgivings over a range of policy issues including pensions.
"It could pose a problem," said Mike Craven, partner at Lexington Associates, a political consultancy firm in London. "The Labour Party is struggling financially right now. Corporate sponsors are donating less, so they are more reliant on the unions."
Much depends on what the government announces in its Green Paper on pensions, due out before Christmas this year, which will contain proposals from the Government on how to reform Britain's pensions system.
Unions are hoping the Mr. Blair will announce firm rules aimed at discouraging companies from shutting down their defined benefit schemes, or introduce compulsory minimum levels of employer - and employee - contributions to retirement schemes.
