The John Lewis Partnership has proposed to cut its final salary pension scheme and restructure its pension arrangements in a bid to reduce costs.
In March 2013, its defined benefit (DB) pension scheme recorded a pension deficit of £840 million. At the same time, John Lewis Partnership announced it would be reviewing its pension scheme to ensure it remained fair to employees and affordable over the long term.
Its proposals include:
- introducing a defined benefit/defined contribution (DC) hybrid scheme
- continuing to offer a DB scheme but at a reduced accrual rate
- increasing the waiting period before joining the DB section of the scheme for new employees from three years to five years
- reinvesting savings from changes to the DB portion of the scheme to extend the contributory DC from the first three years to an employee’s entire career
- linking the pension scheme’s normal retirement age to future increases in the State Pension Age.
- limiting pension increases in retirement to the consumer prices index (CPI) measure of inflation, capped at 2.5% instead of the retail prices index (RPI).
Folllowing development and discussion, a final version of these proposals is expected to be voted on by the organisation’s Partnership Council, in tandem with a period of statutory consultation.
The organisation and its trustees previosuly agreed a 10-year plan to reduce the deficit of its pension scheme, which will include cash contributions of £44 million a year and a one off payment in January 2014 of £85 million.
Nat Wakely, director, pensions benefit review at John Lewis Partnership, said: “The draft proposal maintains a non-contributory DB pension but at a reduced accrual rate which then enables the contributory DC pension to be extended throughout an employee’s whole career.
“Decisions on the pension benefit require the agreement of the Partnership Council, the partnership board and the chairman.
“This ensures that partners play a key role in determining how the [organisations] continues to offer a pension that is affordable and fair.”