June 29, 2010 / 4:16 PM / 10 years ago

UPDATE 1-BBC may end defined-benefit pensions for new staff

* To undertake 90-day consultation period

* Second pension scheme’s deficit at around $3 bln

* Hit by rising longevity, volatile markets

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By Georgina Prodhan and Cecilia Valente

LONDON, June 29 (Reuters) - British state broadcaster the BBC [BBC.UL] may close its defined-benefit pension scheme for new joiners, following similar action by private-sector rivals, as they wrestle with rising longevity and volatile markets.

The publicly funded BBC said on Tuesday it would undertake a 90-day consultation on the proposal and other measures after its second pension-scheme’s deficit ballooned to about 2 billion pounds ($3 billion) in 2009 from 470 million in 2008.

The BBC closed its first final salary defined benefit scheme to new entrants in 2006, opening the current one which pays pensions based on average career pay rather than final salary.

“The proposed changes will help to ensure that the BBC pension scheme remains sustainable, flexible and affordable for the future,” the world’s largest broadcasting organisation said in a statement.

Defined-benefit schemes, which use salaries to calculate guaranteed levels of pension payments, are the most generous form of pension arrangement. Many firms are ditching such schemes as employees live longer.

The BBC received 3.5 billion pounds in licence-fee income in its last financial year. The licence fee is levied on all television-owning households in Britain, currently costing 146 pounds per year, which provides the bulk of the BBC’s income.

The BBC is under pressure from rivals led by satellite broadcaster BSkyB — who argue its state funding distorts the market — to scale back its ambitions.

A new, right-leaning UK government elected in May is widely expected to move to curb the BBC’s powers.

As well as core broadcasting operations in free-to-air UK television, the BBC has successful commercial operations overseas and owns the iPlayer, an online catch-up service for BBC programming that is one of Britain’s most popular websites.

The BBC itself signalled a retreat from some commercial operations in March.

The broadcaster said on Tuesday that existing members would remain in the defined-benefits scheme under its proposals, with a new, flexible defined-contribution scheme to be introduced for new joiners.

Current members of the existing scheme would continue to build up benefits, but future salary increases for calculating pension benefits would be limited to 1 percent per year. The BBC is not imposing a deadline to scheme members to make a decision. “It would be an on-going proposition,” a spokesman for the broadcaster told Reuters. Those eligible to stay enrolled with the defined benefit scheme, who choose to join the DC plan for future accruals will have their pensions built up “broadly in line with inflation” until retirement.

Independent consultant John Ralfe, who does not advise the scheme, said the cap would effectively reduce benefits. “I am not aware of any such situation where an employer has sought to reduce the benefit that have already been earnt. You would expect benefits to be in line with inflation,” Ralfe said.

“The youngest members would see the value of their future defined benefit pension accrual being reduced to such an extent that the alternative defined contribution scheme may actually become more valuable,” said Danny Wilding, partner at consultancy Barnett Waddingham.

“If inflation is higher (than 1 percent), than there would be a small decrease, but your pension is increasing — at a lower rate than it used to — but it still increases,” the BBC spokesman said.

The spokesman said the next triennial valuation of the career average scheme, due next year, may prompt a further review, but in the contribution rate rather than the fund’s structure. ($1 = 0.6638 pound) (Reporting by Georgina Prodhan; Editing by Simon Jessop)

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