Asda closes final salary pension scheme

Supermarket giant Asda is closing its final salary pension after the scheme's deficit nearly doubled during the past nine months, it was disclosed today.

The group took the decision to close the scheme to existing members after its funding shortfall soared to £400 million from £210 million at the start of the year.

The move will affect about 3,800 Asda staff, all of whom work at a managerial level, who will be transferred into the group's defined contribution scheme.

Workers who joined the group after 2005 will not be affected by the change, as the group closed its final salary scheme to new entrants then.

Asda is attempting to soften the blow by offering members of the scheme a one-off payment of 25% of their annual salary.

It is also proposing making improvements to its defined contribution scheme, which will benefit all members.

An Asda spokesman said: "We need to address the deficit. It has grown significantly and it is important that we protect the business in the future.

"The deficit has almost doubled to £400 million in just nine months."

Workers were told about the changes at a meeting yesterday afternoon, it was reported by the Yorkshire Post.

The news comes the day after former Labour Cabinet minister Lord Hutton called for an end to final salary pension schemes for public sector workers.

He said in his report on public sector pensions that the Government should also raise the contributions workers have to make to the schemes, as well as increase the age at which they can retire.

Leeds-based Asda is the latest in a long line of companies, including supermarket group Morrisons, to close its final salary pension to existing, as well as new members.

The schemes, which pay a pension based on a worker's salary immediately before they retire, have become increasingly expensive to offer in recent years as a result of rising life expectancy and falling investment returns.

Seven out of 10 defined benefit schemes, mainly final salary pensions, were in deficit at the end of August, with the schemes collectively facing a funding shortfall of £105 billion.

Companies which close their final salary pensions are typically replacing them with less generous defined contribution schemes, under which workers are left to shoulder all of the risk of investment volatility and rising longevity.