One of the UK’s last ‘generous’ pension schemes is planning to cut pension costs and reduce the burden on its GBP 85 million pension deficit.
The John Lewis Partnership, which owns both John Lewis and Waitrose, plans to offer workers a less costly hybrid scheme which combines defined benefit and defined contrition elements.
The company is one of the last remaining to offer a final salary pension, and intends to increase the period workers have to wait to join the scheme to five years, instead of three.
In addition, further proposals to link the retirement age of the scheme to the state pension age and use the consumer prices index to determine pension increases may affect both new and existing employees.
Whilst Nat Wakely, the Director of the pensions review, states the pension is “a defining element of our business,” the new scheme is intended to be “sustainable for the long term.”
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John Lewis launched the investigation back in March 2013 after a valuation unearthed the extent of the deficit.
As the company is owned by its employees – currently numbering some 80,000 – the decision to trim the pension deficit will be “high political,” according to independent pensions consultant John Ralfe.
The JLP has already agreed to a ten-year plan to cut the deficit – including a one-off cash injection of GBP 85 million in January, yet further action is yet to be decided upon.
A collection of proposals will be put to a vote later in 2014.
Whilst being called the demise of one of the most generous pensions still left in the UK, the gold-plated pension will still retain some of its perks.
This includes the relatively unheard of capacity for new staff to continue being able to join a final-salary tied scheme, which bestows a pension linked to a person’s final salary, rather than the relative worth of the investments within the pensions saving pot.
However as previously mentioned, new staff will have to wait five years, rather than the previous three-year contract needed.
Furthermore John Lewis is sweetening the deal with a promise that “defined contribution” scheme payments – those where workers are also at risk if investments flail – will give better dividends.
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