Alliance Boots, the chemist-chain owned by US private equity firm KKR, opened talks with employees yesterday over plans to scrap the company’s final salary pension scheme. The announcement comes just a fortnight after chief executive Andy Hornby thanked staff for a “fantastic effort” during 2009.
The company becomes the latest in a long line of those that have sought to cut employees’ pension benefits. Last year, groups including Wm Morrison, Barclays, IBM and the UK unit of Fujitsu all closed final salary, or defined benefits, schemes. Alliance Boots said yesterday that at present, 70 per cent of its staff had no pension and that as well as making commercial sense, the move was designed to motivate staff.
“Having very carefully considered all options, the proposed pensions changes for UK employees is the right step to take,” said the company’s executive chairman Stefano Pessina. “This will help protect the business from the effect of pension funding volatility and ensure the long-term sustainability of the Group’s UK retirement savings schemes. We have seen many large businesses, like ours, make this move and our aim is to encourage greater participation from all UK employees in a competitive and fairer retirement savings scheme.”
The move will affect the 20 per cent, or 15,000, of the Alliance Boots’ staff that have a final salary agreement. Boots closed the scheme to new entrants in 2000, while Alliance UniChem, with which Boots merged in 2006, closed its defined benefits scheme in 2002. The scheme that was closed yesterday accounted for 90 per cent of the company’s pensions costs, it said.
Two weeks ago, the company said revenues in the three months to the end of December last year jumped by 10.2 per cent, while Mr Hornby, the former chief executive of the failed bank HBOS, said that Alliance Boot’s final position “remains strong”.
He did warn, however, that the expected sluggish economic recovery, was likely to make 2010 a tough year. Yesterday the group revealed that its total pension fund was in surplus by £188m.
The company was taken private in 2007 by KKR in a deal that later became a by-word for the over-ambitious leveraged finance market. Several banks, including Royal Bank of Scotland, pooled around £12bn for KKR. The last update given by the group on its debt, on 31 March last year, said the net borrowings stood at slightly more than £9bn. Prior to that the company bought back some of its debt from investors in the secondary market.