The Financial Services Authority (FSA) has given lower pay rises to staff who are members of its final salary pension scheme than those who are not.

The City watchdog is thought to be the first major group to give staff different salary increases based on which pension scheme they belong to.

It is understood to be giving staff who are members of its final salary schemes average increases of 4.2 per cent, while those who are members of the defined contribution scheme, under which members rather than the FSA shoulder the risk, are in line for around 6.7 per cent.

The move is thought to have been adopted due to the growing liabilities faced by the FSA's final salary scheme, which reported a £31 million shortfall at the end of March 2002, a deficit which is likely to have widened during the past year due to further stock market falls.

About 900 people are members of the scheme, which was closed to new members in 1998.

The FSA defended the move, saying giving lower pay rises to members was better than closing the scheme altogether.

An FSA spokesman said: "We have to exercise a greater degree of control over our pension fund liabilities by ensuring the impact of salary increases on the pension fund liabilities is taken into account."

But Derek Simpson, joint general secretary of Amicus, which has been campaigning against the closure of final salary pension schemes, said: "This proves that when companies close final salary pension schemes it is not the end of the trouble, it is just the beginning.

"The Government must close the loophole and protect workers from the great pensions robbery."

The FSA also announced plans to stop fund managers passing on certain costs to investors in their management charges.

Under the proposals, fund managers would no longer be allowed to include costs for services other than buying and selling shares in charges without customers' consent.

The move aims to end the practices of so-called bundling and softing, under which brokers provide a range of additional services to fund managers.

Bundling refers to pooling a number of fund managers' costs, such as research and dealing screens, into a single commission charge, while under softing brokers agree to pay for services used by fund managers in return for an agreed volume of business at a set commission rate.

The FSA said in 2000 more than £2.3 billion of commission was paid to brokers by UK institutional fund managers, between £660 million and £880 million of which was thought to have been spent on services other than dealing.