John Lewis to move to hybrid pension scheme
John Lewis is proposing to make changes to its final salary pension scheme.
In March 2013, the retailer announced that it would be reviewing the scheme to ensure that it remained both fair to employees and affordable over the long term.
Following discussions and briefings with employees, the retailer is now recommending that it moves to a defined contribution hybrid scheme in which part of employees’ pensions will be linked to their final salary and part will be dependent on their contributions.
The proposals will mean that there will be reduced defined benefit accrual rate while new employees will have to wait five years to become eligible for the scheme instead of the current three.
It is also being recommended that the scheme’s normal retirement age be linked to future increases in the state pension age. In addition, the retailer is proposing to limit pension increases in retirement to the Consumer Prices Index measure of inflation capped at 2.5% instead of Retail Prices Index, for future service.
John Lewis said a final proposal expected to be voted on by the Partnership Council towards the end of 2014, in tandem with a period of statutory consultation.
Pensions benefit review director and author of the draft review Nat Wakely said: “The John Lewis Partnership pension is a defining element of our business. We are determined that it should remain so while ensuring that the scheme is sustainable for the long term.
“The draft proposal maintains a non-contributory defined benefit pension but at a reduced accrual rate which then enables the contributory defined contribution pension to be extended throughout a Partner’s whole career.
“Unlike in other companies, employees and shareholders are ultimately one and the same in the Partnership. It’s for that reason that decisions on the pension benefit require the agreement of the Partnership Council, the Partnership Board and the Chairman. This ensures that Partners play a key role in determining how the Partnership continues to offer a pension that is affordable and fair.
“It’s an important decision for current and future generations of Partners and one that our democratic structure enables us to take together.”
At its last triennial evaluation in March 2013 the valuation of the company’s defined benefit pension scheme showed a deficit of £840 million. The Partnership and the Trustees have agreed a 10 year plan to eliminate this deficit, which includes cash contributions of £44 million a year and in addition a one off payment in January 2014 of £85 million. The balance of the deficit is expected to be met by investment returns on the scheme’s assets.
