In the midst of the current panic over the end of final salary pensions and the inadequate provision which many people have made for retirement, The CIPD has warned companies that abolishing final salary pension schemes for employees who are already building up entitlements under them could seriously damage the ‘psychological contract’ between employers and workers.

In response to the evidence that some large companies are replacing final salary pension arrangements for current staff, CIPD employee relations adviser Mike Emmott warns that: “Where businesses fail to meet expectations about pensions, they risk damaging the trust between employer and employee. This is likely to adversely affect motivation and productivity, as employees feel that their employer no longer feels the same level of commitment to them. This will be reinforced if the employer also reduces its financial contribution to the scheme. Organisations should consider the positive impact of final salary schemes on retention of staff, and the effect on the bottom line of losing key people. Final salary schemes will not be equally suitable for all organisations, but employers should ensure that any changes in existing schemes are fully explained to employees.”

The CIPD maintains that :”the ‘psychological contract’ is in place in every organisation. It is the mutual expectations that employee and employer have of one another. Some of the expectations in this contract are formalised, many are not. In an ideal world this important pact would not be left to chance. Companies that damage the psychological contract do so at their peril. It is the fundamental, essential ingredient in healthy, successful organisations.”