Employment Partner, Richard Thomas, looks at the industrial action taken by BMW employees as a result of the car giant closing their final salary pension scheme 

The UK’s largest Trade Union, Unite, has commenced a series of eight 24 hour strikes combined with an overtime ban and work to rule, involving up to 3,500 BMW workers making engines and the iconic Mini and Rolls-Royce motorcars.

The industrial action has been called as a result of BMW’s plan to close the final salary pension scheme and replace it with a defined contribution scheme. With a defined benefit (final salary scheme) the employer assumes all the liability for making the pension payments to the employee, usually calculated on the basis of a percentage of the employee’s final salary. With a defined contribution scheme the employer and the employee make monthly payments into a pension scheme and the employee’s pension is then made up of the total that has accumulated in this scheme over the years. The final salary scheme is without doubt the more beneficial to the employee.

It will be the first ever strike by BMW’s UK workforce and follows a 93 per cent vote in favour of strike action by workers at the carmaker’s sites at Cowley, Goodwood, Hams Hall and Swindon. The industrial action ballot was conducted under the new balloting rules introduced by the Trade Union Act 2016 which increased the voting threshold to 50% for union ballot turnouts while retaining the requirement for there to be a simple majority of votes in favour of industrial action. Unite comfortably exceeded this threshold in their ballot of their members.

It is expected that production will be significantly disrupted by the action, which involves workers from across the four sites who are members of BMW (UK) operations pension scheme.

Unite is protesting against BMW’s plans to close the final salary pension scheme with effect from 31 May 2017; a decision which could see some younger UK BMW workers lose up to £160,000 in retirement income. However, it is now commonplace for many large employers to have either already closed or to have commenced consultation regarding the closure of final salary or defined benefit pension schemes. The reason for this is that they are now generally seen as unaffordable for employers. Record low interest rates combined with the fact that those employees lucky enough to have retired on a final salary scheme are now living longer mean that the cost of making the payments due under these schemes has become prohibitive to most employers including large employers such as BMW.

This is another example of the generational divide that affects all developed countries with one “lucky generation” being able to retire with a final salary scheme that simply will not be available to the next generations. It is highly unlikely that BMW will back down from their decision to close the final salary scheme so the industrial action may well be targeted at persuading BMW to provide a more generous replacement defined contribution scheme usually by way of enhanced employer contributions to the scheme. Unless this happens there could be a long running dispute with BMW just as the UK exits the EU. This may impact upon future BMW investment decisions.