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Last final salary scheme in City faces axe as annual costs soar to estimated £35m; retirement age to be standardised
Freshfields Bruckhaus Deringer senior partner Anthony Salz has kicked off a controversial review of the partners' treasured final salary pension scheme.
The magic circle firm is virtually the only one in the City whose current partners fund the retirement of previous partners. Most other firms abolished this system more than 10 years ago.
Freshfields previously attempted reform 12 years ago, but in an unusual move for such a consensual firm, the change was blocked by older partners.
Concurrently, Salz is considering a proposal to unify retirement ages across the firm. At the moment German partners can work longer.
Under the existing re-gime, retired partners share in the profit the firm earns in any given year. A partner retiring at 55 or over would get one fifth of the amount a working partner receives that year.
Based on The Lawyer UK 100 Annual Report figures, partners at the top of lockstep took home £853,000 in 2004, with retired partners on £170,600. However, the one-fifth share is subject to a cap - it cannot exceed 10 per cent of the total annual profits of the firm.
Salz said: "Partly it's having regard to current projected growth rates. We cannot forecast accurately what growth rates will be, and these are the figures which determine when you hit the cap."
The cap in the last financial year would have been £35m, but Salz declined to comment further on the financial position.
Any change would be subject to a consultation with both former and current partners.
However, former partners have what Salz described as a "vested right" to receive the pension.
Even with 100 per cent of the existing partnership behind it, it may not be possible to change the position.
Salz refused to say when partners would see the proposals on the basis that he has not yet informed the partnership of the timeframe for consultation.