John Lewis has decided against closing its final salary pension scheme, leaving it as one of the only retailers in the country that still offers new staff the gold-plated retirement payouts more commonly associated with politicians and civil servants.
However, the amount they will receive is set to fall as the percentage of their final salary drops, whilst staff must also wait five years before they can sign up, rather than the three years’ service needed previously.
The employee-owned business had been considering scrapping the scheme and launched a year-long review but bosses believe the £840m pension deficit can be reduced without the need to close the defined benefits scheme.
Proposals have been made that the accrual rate – which the final salary payment is based on – should be reduced and current staff will be expected to contribute towards the scheme through a defined contribution scheme, which leaves less risk with the company.
Experts have suggested even though payouts will fall, the scheme is still incredibly generous for the private sector, but it may not go far enough to tackle the pension deficit.
John Ralfe, an independent pension consultant, said: “I am surprised they are keeping the defined benefit scheme open to existing members and new employees.
“Although it is not quite as generous as before it is still a defined benefit pension scheme and that is increasingly rare in the UK.
“On a scale of one to 10 they haven’t done anything terribly radical and still leaves John Lewis Partnership with the considerable risk of running a defined benefit pension scheme.
“This isn’t the last we will hear from John Lewis on their pension schemes, it isn’t enough to address things properly. “
John Lewis has also said that the pension increases for retired workers will go up in line with inflation according to the Consumer Price Index, rather than the Retail Price Index. CPI currently stands at 2 per cent, while RPI is at 2.7 per cent and is typically higher. It will also be capped at 2.5 per cent should inflation rise significantly.
The pension age will also rise in line with changes to the Government state pension age, which goes up to 66 years old from 2020 for both men and women.
Nat Wakely, director of the pensions benefit review who wrote the new proposals, said: “The John Lewis Partnership pension is a defining element o our business. We are determined that it should remain so while ensuring that the scheme is sustainable for the long term.”
The proposals will be put to staff and voted on by the end of the year before any changes are formally made.
He added: “Unlike in other companies, employee 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, partnership board and the chairman.”
John Lewis remains one of the very few retailers, and private companies, to offer a final salary pension scheme. Supermarket Asda scrapped its scheme in 2010 completely. Sainsbury’s shut its scheme to new members in 2002 and more recently, discount retailer Wilkinson shut its final salary pension scheme last year.