Defined BenefitMay 16 2019

John Lewis closes defined benefit scheme

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John Lewis closes defined benefit scheme

Retailer John Lewis is closing the defined benefit section of its hybrid pension scheme from April 2020, a move that will save the company £80m in annual costs.

The decision was approved by the John Lewis Partnership Council - a body made up of 58 elected representatives of more than 80,000 staff or partners – following a year-long review.

The retailer stated it will offer an "improved" defined contribution scheme to its members with matching contributions of up to 8 per cent of pay.

An additional 4 per cent will be paid after three years’ service, regardless of whether the member pays into the scheme or not, John Lewis stated.

The decision, which was announced yesterday (May 15), was made after the retailer reported pension operating costs of more than £200m in 2018, compared to staff bonuses of £44.7m, according to its annual report published in April.

With profits falling in recent years, John Lewis no longer considers the current pension to be affordable, and deems the balance between bonus and pension costs as too uneven.

"The new pension scheme structure is designed to be more affordable, supporting the partnership’s strategy of improving its long-term financial sustainability," the retailer stated.

According to its latest actuarial valuation from March 2016 the pension scheme has a funding deficit of £479m. It has assets worth £4,4bn which are sufficient to cover 90 per cent of the benefits accrued.

Several retailers in the UK are implementing restructuring plans, which have an impact on their pension schemes.

Debenhams was the latest example, with its DB schemes entering an assessment period at the Pension Protection Fund in April.

However, creditors have passed a company voluntary arrangement allowing the pensions to be paid as normal.

maria.espadinha@ft.com

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