UPDATE 2-Barclays to freeze final salary pension scheme

* Barclays says current plan "untenable" as deficit swells

* Final salary scheme future accrual to end

* Union sees "deep anger" among 18,000 affected staff

(Adds details)

By Steve Slater and Cecilia Valente

LONDON, June 3 (Reuters) - British bank Barclays (BARC.L) Plc plans to curtail its final salary pension scheme for British staff in favour of a cheaper arrangement, saying the current plan was "untenable".

Trade union Unite said the change would affect 18,000 staff and there would be "deep anger" at the proposals.

"This attack on the pensions of the loyal and hard-working staff at the bank is utterly alarming. The union is urging the bank not to establish this change," said Rob MacGregor, Unite national officer.

Barclays Chief Executive John Varley told staff in a letter that the bank's pension fund deficit was worsening and the move was best for present and future staff and its pensioners.

"I have formed the view that allowing the current position to remain unchanged ... is untenable," Varley said in the letter.

Barclays' UK Retirement Fund (UKRF), which includes its final salary and hybrid funds, had a deficit of 2.2 billion pounds ($3.65 billion) at the end of September, compared with a 200 million pound surplus just a year earlier, it said.

"This position is likely to have worsened since then," Varley said. "These are huge numbers within the context of our market capitalisation and our P&L account."

Barclays said the move was due to the high volatility involved in running its final salary pension schemes, which became popular in the 1950s, but have been largely replaced by cheaper options in the last ten years.

COST PRESSURE

Barclays is proposing that no future benefits can be built up in the final salary scheme and staff would instead join a hybrid cash balance plan, called Afterwork.

Final salary schemes typically guarantee a fixed percentage of annual pay in retirement while cash schemes rely on staff building up investments in the market to fund an annuity.

The bank this week started talks with staff on its 2009 pensions review.

The consultations are expected to end in August and the change would take effect from December.

Under the proposal, staff would retain benefits they have already secured in an existing scheme but Barclays would stop contributing to the final salary schemes it closed to new entrants in 1997.

It would instead pay into its hybrid scheme, started in 2003. A hybrid pension fund is generally less generous then a final salary arrangement.

Members of Afterwork contribute 3 percent of their salary, while the group contributes 20 percent. Employees can also pay into an extra investment account, to which Barclays contributes 3 percent.

A spokesman for the company was unable to give the terms of the final salary schemes.

Barclays said it has 57,000 active pension members, 139,000 former staff who are yet to draw a pension, and 51,000 pensioners.

Oil major BP Plc (BP.L) said it will close its final salary pension scheme for new UK employees joining the company after April 2010. [ID:nL2297338]