UK - Supermarket giant Tesco has boosted the pensions of thousands of its workers by launching a career average pension scheme for all its employees.
The scheme will give workers a pension based on their annual pay including overtime – and over 40 years would guarantee members a pension of 60% of average earnings.
More than 59,000 Tesco workers previously paying into a money purchase scheme will now be moved into the new scheme while the supermarket chain will benefit from much reduced volatility of pension payments.
Tesco finance director Andrew Higginson said: “We have sought to give our employees the certainty and security for their retirement that they deserve, while trying to protect the group and its shareholders from open ended liabilities.”
Under its career average scheme employees are required to contribute 4% of their salary to the plan with Tesco’s contributions being around twice that.
Watson Wyatt partner Graham Snell commented: “Tesco’s have bucked the trend followed by those employers who have changed employee schemes recently.
“Most have chosen a lower cost money purchase scheme but Tesco did not see this as the best solution for their workforce, who will be far better served by this innovative alternative.”
This move comes as Tesco released its preliminary accounts that show its existing £1.3bn final salary scheme – closed to new members earlier this year – showed a net FRS17 deficit of £127m as at February 22.
Tesco noted that if FRS17 had been fully implemented the charge to its profit and loss account would have been less than £10m – in a year when profits soared to £1.2bn.
However the retailer remained unconcerned about this deficit noting that it was just a snapshot view of its schemes funding position.
Higginson added: “With 117,000 members the pension scheme is a large fund, but with 9000 pensioners, it is a very young scheme. Pensions contributions far outweigh pension payments and will continue to do so.”
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