BDP has cut ties with its floundering final-salary pension scheme which was threatening the practice’s ‘fundamental financial sustainability’
The poorly performing ‘defined benefit’ pension scheme, which employees were offered until 2002 when BDP swapped to a stakeholder pension set-up, had racked up a deficit of £88.3 million.
Over the last decade BDP, which has seen its turnover fall from £96.3 million in 2010 to £67.6 million in 2012, shelled out nearly £24 million to maintain the scheme.
Around 1,500 former and current employees (AJ100) will be affected by the move, which will see the scheme taken over by the Pension Protection Fund (PPF).
The biggest impact will be on those who are reaching retirement age and who have yet to start drawing on the scheme. It is understood they will lose around 10 per cent of their anticipated earnings from the pension.
BDP’s chief executive Peter Drummond said: ’Ten years ago the deficit was about a third of what it became and was manageable. But in recent years a number of unfortunate factors, including low bond yields and actuarial assessments on increased life expectancy, exacerbated the situation.
’The scheme had become unaffordable.’
As part of the legal arrangement with the PPF, BDP will have to make a ’significant’ combined contribution to the statutory ‘safety net’ organisation, after which the company will be liability-free in respect of the scheme.
Drummond said the decision had been ‘unavoidable’ and that the move came against a backdrop of the wider final salary pension problem, with the deficit of the UK’s FTSE 350 companies now standing at £44 billion.
He added: ‘You can bet your bottom dollar we are not alone. But we’d like to think the perception was that BDP had done its best to sustain the situation as long as possible and had now found a way to way to pass on a large chunk of its liability to the regulatory authorities.’
‘We have improved the financial sustainability of the firm and that deficit will no longer be on the balance sheet.’
Speaking about the future of the practice, which now employs 212 architects according to the ARB, Drummond said there was a ‘certain amount of stability’ in some places and that the company’s studios in London, India and China were recruiting.
Statement in full from BDP’s chief executive Peter Drummond
Historically, BDP used to operate a final salary based pension scheme for its employees in the UK. Like many companies, BDP made a decision to move to a defined contribution pension arrangement and since 2002 the firm has operated a group personal pension scheme. This meant that the final salary pension scheme became closed to new members and to future accrual, with the firm supporting the accrued benefits of existing members.
For more than a decade, the balance between the assets (the investment holdings) of the closed scheme and its liabilities (the accrued pension benefits of its members) has become increasingly stretched with BDP having to fund a large and growing deficit.
Over the last two years, the BDP Board recognised that the closed scheme was threatening the fundamental financial sustainability of the firm to the extent that a new way forward had to be found. A solution has now been agreed that in exchange for BDP undertaking to make a defined financial contribution to the scheme, the firm will have no further responsibility to fund the scheme, with its assets and liabilities transferring in due course into the UK’s statutory pension protection fund. All parties to the arrangement recognise that this represents the best financial outcome for the scheme.
BDP will continue to concentrate on winning and undertaking exciting projects for our clients, with significantly improved long term financial stability of the firm.