Harrods, the upmarket retail group owned by Mohamed al-Fayed, became the latest company to axe its final-salary pension scheme yesterday, announcing plans to replace it with a far inferior money purchase scheme.
The move came as Corus also unveiled a review of its UK pension scheme, with an increase in employee contributions and a cap on inflation-related benefits that will see the Anglo-Dutch steel maker cut its pension costs by 20 per cent.
Harrods is one of only a handful of UK companies to have closed their defined benefit scheme to existing members - in effect withdrawing a benefit which was promised to staff when they joined the company.
Although the 1,500 active employees in its scheme will have their current accrued benefits protected once the scheme closes on 6 April, they will have to continue saving in a money purchase scheme into which the company will pay about half the amount it currently contributes to staff pensions.
Employees will be given a company contribution of 4 per cent of salary if they contribute 2 per cent, rising to 8 per cent if they contribute 5 per cent. Under the old scheme, Harrods paid as much as 15 per cent of salary on its staff's behalf.
The Harrods scheme has a deficit of £111m, which the company says it plans to close over a 10-year period. However, the company said it was not prepared to keep the scheme open, as it "presented an unacceptable future risk for its employees and the group".
The Transport & General Workers' Union, which represents a number of Harrods employees, said yesterday that it was appalled by the move.
Madeleine Richards, the union's regional industrial organiser, said: "This has come as a big shock to our members and they are extremely concerned for their future. Many of the staff are loyal, long-serving employees because of the pension, but that prop has been knocked from under them. The T&G will be looking for an urgent meeting with Harrods as soon as possible."
The exact terms of the new scheme have not been agreed upon. A spokesperson for the Harrods Group said yesterday: "This proposal intends to secure the current entitlements while negating the risk of further potential deficits in the future. Longer life expectancy, lower interest rates, higher taxes and low investment returns during the last several years have all contributed to the increased size of funding deficits and the cost of providing future defined benefit pensions. This decision was not taken easily and was only reached after lengthy consultation with industry specialists."
In December, Rentokil Initial became the first major UK company to say it was closing its final-salary scheme to existing members.Reuse content