A wave of blue-chip companies is poised to water down staff retirement benefits in the next few months, pension experts predicted yesterday, after Barclays announced plans to scrap final salary pensions for 18,000 long-serving staff.

Barclays became the first leading UK employer since Rentokil Initial four years ago to announce plans to close its final salary pension scheme to existing members.

Long-servers who joined before 1997 will no longer rack up future benefits in the defined benefit (DB) scheme, and will be offered the chance to participate in an inferior “hybrid” scheme or a conventional defined contribution (DC) scheme. Existing pension promises already clocked up will be honoured.

John Ralfe, an independent pensions expert, said that a number of blue-chip companies were seriously considering a similar move. “This will be the first of many,” he said. “This is the beginning of the next phase in the long slow death of DB schemes.”

Unite, the union representing bank workers, reacted with fury, describing the reform as “utterly alarming” for employees and accusing Barclays of breaking a promise not to put profits before people.

While most private employers have closed DB schemes to new recruits, with BP this week announcing plans to do so, very few have taken the more drastic action of closing them to existing members. But poor investment returns and rising life expectancy have sent deficits in final salary schemes ballooning, forcing employers to consider radical surgery to pension provision.

Network Rail, the owner of Britain’s rail system, yesterday reported a near doubling of its pension fund deficit to £664 million. The scheme has 22,700 members.

John Varley, the chief executive of Barclays, said that the deficit in the Barclays scheme was £2.2 billion last September and had probably worsened since then. Reluctantly, the board had decided it was untenable to keep the scheme open any longer.

Affected staff in the main high-street bank will be offered the chance to participate in an American-style credit account scheme. In return for chipping in 3 per cent of salary, they will accrue 20 per cent of total pay in an inflation-adjusted lump sum to be used to buy an annuity at retirement.

Mr Ralfe estimated that the new scheme was roughly half as valuable to employees as the old final salary plan, although still much more generous than most DC schemes offered by other employers.

Staff in Barclays’ investment banking and fund management sections will switch to a conventional DC scheme in which Barclays contributes 10 per cent of salary.

Benefits already accrued will not be affected. Barclays plans to put the new plans into effect from December this year after consultation.

The majority of Barclays UK staff, 39,000 of them, joined too recently to qualify for the DB scheme and are in the hybrid scheme or the conventional DC scheme. Among the directors, only Mr Varley is in the DB scheme and has already accumulated a promised pension of £572,000 a year.

— Abu Dhabi sold £1.25 billion of Barclays securities yesterday, a day after making £1.45 billion profit on the sale of 1.3 billion of the bank’s shares. The securities paid interest at 14 per cent and sold for 1 per cent above face value. The sale was handled by Credit Suisse. It also emerged that Temasek, the Singapore-state backed investor, sold its 2 per cent stake in Barclays in December and January at a loss estimated at up to £800 million.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax