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BBC announces cap on final salary pension scheme

The BBC has become the first publicly funded organisation in the UK to announce changes to its final salary pension scheme which will limit the £2 billion deficit which has built up over time. The scheme will be closed to new entrants and the company will impose a cap of 1% a year on pension salary increases for existing members. This should, in due course, reduce the £2 billion deficit and allow the BBC to operate the pension scheme with more certainty and a much stricter financial straitjacket in the future.

Many believe that today's announcement by the BBC will be the first of many in the public sector which has attracted the attention and criticism of UK taxpayers - especially those employed by the private sector. It is common knowledge that final salary pension schemes are still popular in the public sector although the vast majority of the private sector schemes have been closed to new entrants or in many cases converted to money purchase schemes.

In simple terms, a money purchase scheme will see a member acquire some form of annuity or drawdown income from their pension pot upon retirement, but crucially there will be no guarantee of the income level. Final salary pension schemes are linked to the number of years service a member has accumulated and their salary upon retirement.

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