BBC blames £2bn black hole as it slashes pension scheme benefits

The BBC yesterday became one of the first quasi-public sector bodies to take the axe to its final salary pension scheme, blaming a £2bn funding black hole. The final salary scheme will be closed to new staff from this December while existing staff will see their benefits sharply reduced.

The corporation said that from April next year, pensionable pay will increase at only 1 per cent a year – regardless of the size of any future pay award. However, staff who opt to voluntarily move into the new "money purchase" pension – where the benefits depend on investment returns, will get a better deal from the funds that they have already built up in the final salary scheme.

According to the corporation's staff handbook: "If you choose to remain in the scheme for future service, benefits built up before 1 April 2011 will continue to increase to your retirement (or when you leave the BBC) in line with annual salary increases, limited to 1 per cent each year.

"If you choose to join the DC (defined contribution) plan for future service you will become a 'deferred member' of the scheme and stop building up benefits in the scheme. The benefits you have built up will increase broadly in line with inflation to your retirement."

The corporation claimed the shake-up was designed to ensure its pension scheme "remains sustainable, flexible and affordable for the future". The deficit stood at just £470m in 2008 compared to the £2bn shown by the 2009 valuation.

Zarin Patel, the BBC's finance director, said yesterday: "This has not been a sudden decision. When changes were made to the scheme in 2006, we made it clear we would need to review the scheme's performance. Our original aim of reviewing it in 2013 has had to be brought forward because of the impact of market performance and growing life expectancy.

"We have spent over 18 months working to find the best solution for our staff. For the next 90 days, the BBC will consult fully on these proposals with staff, the unions, musicians unions and Equity." She said the changes being introduced would be in the interests of both BBC staff and the licence fee payer.

But the move – likely to create an outcry among BBC staff – drew an angry response from unions. Gerry Morrissey, the general secretary of Bectu, said: "Bectu and our sister unions at the BBC have been campaigning in advance of the announcements for the pension schemes to remain open and we welcome the fact that current staff will continue to accrue benefits.

"However the restriction on future pensionable salary increases of 1 per cent will permanently break the link between an individual's salary and their final pension. In addition, the employment benefits package will not be as attractive to new employees and we believe that the BBC will struggle to attract staff with the appropriate skills levels, especially as the BBC will be recruiting a significant number of people for Salford from January 2011."

The BBC's decision could be seen as the test-bed for other public sector schemes, although unlike the BBC their pensions are often not funded. John Hutton, the former Labour minister, is preparing an independent review of public sector pensions for the Government. However, David Cameron has already warned public sector workers to expect less as the Government grapples with the hole in Britain's finances.