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Pension costs rocket at top 10 contractors

FINANCE - Prized final salary pension schemes disappear as pension costs surge during 2003

THE COST of providing a pension ballooned 47 per cent on average at the top 10 contractors last year.

With large workforces, small profits and slender margins, contractors are particularly at risk from the rocketing cost of pension provision and schemes based on an employee's final salary, which were once the norm, are being phased out.

Amec and Costain are the only top 10 contractors with a final salary pension for new employees.Most companies are replacing these with defined benefit pensions to cut costs but contributions are still rising.

Mowlem even closed its defined benefits scheme on 1 January, 2003, in favour of a still cheaper pension and changed the structure of its final salary arrangement to be based on a career average wage.As a result members can only stay in this fund by raising their contributions from 5 to 8 per cent.

The biggest rise in contributions was at Carillion, which had expected costs to rise £10 million but eventually had to put in an extra £14 million to its retirement funds.

Carillion is also suffering from a spiralling deficit in the value of its pension, according to the new FRS17 accounting liability, which requires firms to indicate the value of their schemes. Carillion's five pension schemes were all in surplus in 2001 and the company did not need to make any contributions.

Over the next 12 months all five slumped into the red and this deficit doubled to £109.4 million last year, prompting Carillion to close its final salary scheme.