JOHN LEWIS is proposing to cut its defined benefit (DB) pension scheme and introduce a hybrid scheme with an extended defined contribution (DC) structure.
The proposal would mean a reduced DB accrual rate while employees will have an extra two years to become eligible for the scheme, reports our sister publication Professional Pensions. The current waiting period is three years.
Other changes would see the scheme’s normal retirement age linked to future increases in the state pension age, while pension increases in retirement would be linked to the consumer prices index (CPI) capped at 2.5% instead of the retail prices index (RPI).
All these moves would apply to future service for all partners and are part of a two year review announced in March.
To compensate for the reductions in benefits, the partnership would open up the defined contribution scheme to the whole of service – allowing partners to remain members while also accruing the reduced level of DB eligibility.
The present DB accrual rate is 1/60, however the John Lewis Partnership has not disclosed what this would be reduced to.
A John Lewis spokesman told PP’s sister title WSB, this was a matter to be discussed within the organisation and an update would be given in the half-year results in September.
The DC arrangement is a matching scheme of between 2% and 4.5% contributions and has otherwise been unchanged.
Pensions benefit review director and author of the draft review Nat Wakely said: “The John Lewis Partnership pension is a defining element of our business. We are determined that it should remain so while ensuring that the scheme is sustainable for the long term.
“The draft proposal maintains a non-contributory defined benefit pension but at a reduced accrual rate which then enables the contributory defined contribution pension to be extended throughout a partner’s whole career. Unlike in other companies, employees 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, the Partnership Board and the chairman. This ensures that partners play a key role in determining how the partnership continues to offer a pension that is affordable and fair.
“It’s an important decision for current and future generations of partners and one that our democratic structure enables us to take together,” he added.
The draft proposal will now be developed and discussed throughout the partnership with a final proposal expected to be voted on by the Partnership Council towards the end of 2014, in tandem with a period of statutory consultation.
At its last triennial evaluation in March 2013 the scheme was found to have a deficit of £840m. As a result a 10-year plan was agreed between the partnership and the trustees to eliminate this deficit, with annual cash contributions of £44m and in addition a one off payment in January 2014 of £85m.
The balance of the deficit was expected to be met by investment returns on the scheme’s assets.