LAW SOCIETY: shake up of final salary scheme and performance-related pay recommended


The Law Society is embarking on a root-and-branch overhaul of pay and pensions for nearly 1,400 staff across its three arms, after declaring the present arrangements 'unaffordable' and 'unfair'.



Performance-related pay is likely to be introduced across the board, partially replacing a system which rewards staff mainly through a combination of cost-of-living increases plus annual salary increments based on length of service.



These dual increases have seen employees enjoy average pay rises significantly ahead of inflation in recent years - over 6% in 2007, nearly double the average for the services sector.



The Society's final salary pension scheme is likely to be closed to future accruals. A funding deficit of £71 million was identified in 2004, since when Chancery Lane has pumped £64 million into the scheme. However, the trustees have now made a fresh demand for a further £40 million over the next four years, and it is thought that a request for another £25-40 million may also be on the way.



Des Hudson, chief executive of the representative arm of the Society, explained the need for change in a series of presentations which kicked off a 60-day consultation with staff and trade union Amicus.



Some 170 staff are members of a less beneficial - and less expensive - defined contribution (DC) scheme, under which members rather than the Society bear the risk of fluctuating investment returns and actuarial assumptions about factors such as longevity.



The conditions of the DC scheme may be enhanced to make it more attractive to staff transferring from the final salary scheme, if and when the latter is closed to future accruals. This could happen at the beginning of 2009.



Mr Hudson said an enhanced DC scheme could see the Society agree to contribute £1.50 for every £1 contributed by the employee up to an agreed minimum.



While he did not rule out having to make a call on the profession in future, Mr Hudson insisted that the Society can afford the current pensions obligations, and that it is a case of 'ordering priorities'.



He told the Gazette that the main cause of the rising deficit is the change in life expectancy assumptions, a situation 'no different' from the pension problems of other organisations. 'We're facing up to these issues and making a controlled choice, rather than having to act in a panic,' he said.



The Society is seeking a short-term alternative to the current system for the 2008 pay award. A new and more flexible menu of benefits additional to pay and pension is also likely to be introduced as part of the overhaul.



Mr Hudson said the current remuneration regime is 'unsustainable' and 'unaffordable'. He added that it is also 'unfair' because it rewards length of service and not performance; and 'uncompetitive' as the Law Society heads into a post-Legal Services Act era where other bodies may compete with it to undertake both representative and regulatory activities.



He told staff: 'If we pretend this is not happening and delude ourselves we can just go on as before, I would doing every one of you a grave disservice. The status quo is not an option.'



Mr Hudson stressed that he will continue to invest in the Society, moving more staff to frontline member services roles. There is no need for immediate cuts and there are no plans for redundancies, he added.



In a statement, the Law Society branch of the Amicus section of trade union Unite said it was 'extremely concerned' about the announcement and would be consulting members. 'We are seeking advice from the union's pension advisers and legal team and will be considering the options very carefully,' it added.



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Paul Rogerson