Tesco, the country’s largest private sector employer, is to raise its pension age from 65 to 67 in a move which could be followed by other major companies.
The supermarket group told its 200,000 workers yesterday that it wants to raise by two years the age at which they can claim their full pension.The company, Britain’s biggest supermarket, also announced that it intends to move the inflation index it uses to calculate annual payment increases from the retail prices index (RPI) to the “cheaper” consumer prices index (CPI), which excludes mortgage payments, council tax and house price depreciation.The switch could mean workers receive up to 20 per cent smaller payouts upon retirement, experts said.
Tesco is by far the biggest company to suggest raising the retirement age for its workers. Other major companies are likely to follow suit, it was claimed.Experts said the moves underlined how companies are using any methods available to reduce the burden of paying workers in retirement. A company spokesman said that when the first Tesco scheme was created in 1973, the company expected pensioners to live until 77 on average. Now, a 40-year-old Tesco employee is expected to live until the age of 90.
She said that under the scheme staff can still retire at 65, but they would not receive their full pension. Tesco operates a famously generous defined-benefit pension scheme, which offers a predetermined monthly payout based on career earnings, and the moves are likely to be met with opposition. The scheme has 293,000 members, including 172,000 active workers.
The retailer insisted it would not change the defined-benefit aspect of the scheme and would keep it open to new members, one of only three FTSE 100 companies to do so. It said the changes were necessary to make the scheme sustainable.Ros Altmann, a former government pensions adviser and now director-general of Saga, said: “It is inevitable as people live longer, something in these pension schemes needs to change.”She added: “These sort of changes are being discussed in pension schemes up and down the country; Tesco just might be the first to introduce them.”
Joanne Segars, chief executive of the National Association of Pension Funds, said: “Asking staff to retire later and using the CPI measure of inflation are ways of making pensions like this more sustainable. Tesco certainly won’t be the last to look at these options.”Tom McPhail, a pensions expert at Hargreaves Lansdown, estimated that a worker, based on the national average salary, could receive 20 per cent less in retirement. He said: “The cumulative effect adds up to a very significant cut in the employee’s total pension rights. The changes make objective sense, and the pension will still be a good one in the context of most private sector schemes. But I can’t imagine it will go down very well with employees.”
The changes will take effect from June, and will affect only future accruals.While Tesco is believed to be the first major company to move its pension age to 67, it follows a number of companies in changing from RPI to CPI as a basis for payment increases. The move saved BT £2.9 billion, while BAE Systems, the engineering company, and British Airways have also cut costs in this way.Tesco had a pension scheme deficit of £275 million last year, and the company has struggled in recent months. It admitted it needs to spend “hundreds of millions” revamping its supermarkets.
The Government has already legislated for the later retirement age of 67 for public sector workers, and it also wants to use the cheaper CPI measure for public sector pensions, though this is being challenged by the unions in the High Court.Mr McPhail calculated that a Tesco employee aged 30 and earning £26,000 a year would receive a pension of £15,800 a year rather than £16,900 when they retire at 65 because of the switch from RPI to CPI.
Tesco said the later pension age did not mean workers had to retire two years later. A spokesman said: “Our staff can still retire at 65; indeed they can still retire any time after 55. These changes don’t require colleagues to work any longer, do not require colleagues to pay more and will not affect the pension that staff have already built up.” – Thetelegraph
