Citywire printed articles sponsored by:
View the article online at http://citywire.co.uk/money/article/a575109
Is Tesco right to change its pension scheme?
Tesco employees shouldn't protest too much about proposed changes to their pension plan – they're sitting on defined-benefit gold dust.
by Michelle McGagh on Mar 16, 2012 at 11:33
Tesco (TSCO.L) can’t catch a break at the moment. Last month it was caught up in the government’s unpaid workfare – or should that be work(un)fair – scheme, and now its paid workers are planning a protest over changes to the supermarket giant’s pension scheme.
Britain’s largest private-sector company is making some significant changes to its defined-benefit (DB) scheme, including increasing the retirement age to 67 from 65 and aligning the scheme with the consumer price index (CPI) instead of the retail price index (RPI).
For those 172,000 actively working members of the scheme – there are 293,000 members in total – it means they won’t accrue full benefits until age 67, although they will still be able to retire at 65. But most galling for the workers is the shift to CPI for future benefits, which will cut pension payouts by up to 20%.
Being told you are having your pension cut 20% when Tesco racked up record profits last year of £3.8 billion is bound to sting, and that was despite a pretty poor showing from UK sales (most of the company’s increased profits came from Asia).
Despite a profit warning at the beginning of the year following a poor festive season it’s still set to make a profit ‘at the lower end of the forecasts’ this year.
Employees will no doubt point to the billions of pounds of profits and executive remuneration packages in their argument against the changes, but there is one very important fact they should consider before they grab their placards: Tesco is still operating a DB pension.
It is just one of three FTSE 100 companies that operates a DB scheme that is still open to new members – most DB schemes have been ditched in favour of substantially less generous defined contribution schemes that take pension risk away from the employer and put it on the individual.
The pension offered by Tesco will continue to be generous. It will increase in line with CPI up to a maximum of 5% inflation – double the legal minimum of 2.5%.
Tesco workers have to appreciate that, like the rest of us, they are living longer and will need to retire later: this is not Tesco’s doing, it is a fact of life – and the increase in pension age Tesco is implementing is in line with the government’s increases.
Having to work longer to receive less pension will never seem fair, but Tesco employees should count their blessings. They are still members of one of the last remaining DB schemes. I’m sure the employees of Shell (RDSb.L) – which closed its DB scheme at the beginning of the year – wish they had been offered such a deal.
Maybe Tesco employees shouldn’t jump the gun and remember that Every Little Helps when it comes to saving for retirement.
More about this:
Look up the shares
More from us
- The Expert View: Tesco, Trinity Mirror Group and Aegis
- Hot Stocks: investors pounce on battered Tesco
- Tesco chairman swoops on retailer's distressed shares
- Tesco: the funds that held the battered stock
- Big Price Drop leaves Tesco investors reeling
Weekly email from The Lolly
Get simple, easy ways to make more from your money. Just enter your email address below
An error occured while subscribing your email. Please try again later.
Thank you for registering for your weekly newsletter from The Lolly.
Keep an eye out for us in your inbox, and please add firstname.lastname@example.org to your safe senders list so we don't get junked.
Latest from Investment Basics
by Gavin Lumsden on Dec 19, 2014 at 17:24