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Honda Move to Raise Age of Retirement May Set Trend

By: James Mackintosh, Financial Times

March 22, 2003

Companies are to be urged to consider increasing the retirement age for workers to tackle the soaring costs of pensions after Honda, the Japanese carmaker, broke the taboo on raising the age of departure.

The influential National Association of Pension Funds will say in a report in May that raising the retirement age is an alternative to closing popular final salary schemes.

The NAPF believes other companies will risk a showdown with unions in order to follow Honda by making employees work longer to qualify for a full pension.

"The way we see the wind blowing is that people will be having to work longer to pay for longer retirement [because of longer lifespans]," said Paul Barton, member services manager at the NAPF and author of the report. "You can expect more companies to go this way but of course they will have a right royal wrestle with the unions."

Honda has attempted to bypass its union, recognised only last year, by writing directly to its 4,300 staff in Swindon to tell them of the increase in retirement age from 60 to 62.

Honda said the yawning gap in its pension fund - £42.5m last March - meant it had to take the action to preserve the scheme. Since the last published valuation, the deficit is certain to have ballooned, as the entire £71m fund was invested in shares. If it fell in line with the 28 per cent drop in the market since then, its assets would be less than half those needed to pay promised pensions.

Other companies have reacted to falling markets and increased lifespans by stopping final salary pensions for new workers, increasing staff contributions, cutting the value of benefits and switching investments from shares to lower-risk bonds.

Honda's pension situation is so bad that it is also closing the scheme to new employees, increasing staff and company contributions and injecting £10.2m of its own cash.

"These changes put the scheme on a firm financial footing for the future and we are pleased to be able to respond to the requests of [workers] to maintain the scheme," Honda said. The company will reconsider whether to let new employees join the final salary scheme in future if the deficit goes away.

The company, which has lost a cumulative £390m from Swindon since opening in 1989, already faced a difficult round of negotiations with Amicus after recognising the trade union last year.