Tesco is planning to close its defined benefit (DB) pension scheme to all employees, it announced today.
In a trading statement to the London Stock Exchange for 19 weeks ended 3 January, the retailer said it would begin a consultation on closing the scheme to cut costs and reinvigorate the flagging business.
The announcement follows the supermarket chain’s toughest year on record which saw it investigated by the Financial Conduct Authority and the Serious Fraud Office after it overstated its profits by £263m.
Tesco was one of a dwindling number of FTSE 100 companies still offering a DB scheme to employees. The scheme has more than 200,000 employed members and assets of more than £8bn under management.
Other cost cutting measures announced today include the closure of 43 unprofitable stores and the consolidation of head office locations which will see the closure of the Cheshunt office in 2016 and Welwyn Garden City becoming the UK and group centre.
Tesco chief executive Dave Lewis said: “We have some very difficult changes to make. I am very conscious that the consequences of these changes are significant for all stakeholders in our business but we are facing the reality of the situation. Our recent performance gives us confidence that when we pull together and put the customer first we can deliver the right results.”
Hymans Robertson said plans to close the scheme were an ‘inevitable consequence’ of the competitive environment among supermarkets, particularly with discounters Lidl and Aldi competing without legacy DB liabilities.
Head of corporate DB Jon Hatchett said: “The decision to close will leave just three DB pension schemes of FTSE 100 companies remaining open to new members – Morrisons, Diageo and Johnson Matthey. For UK plc, the road to reducing their exposure to their pension scheme liabilities will move onto phase two and closure to future accrual.
“Almost a third (32%) of the 6,000 DB schemes are already closed to future accrual. This figure will increase significantly over the next couple of years as schemes adjust to new pressures from major upheavals such as the end of contracting out and record low bond yields.”
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