Tesco reveals that it may close its defined benefit (DB) pension scheme and replace it with a cheaper alternative as it reports a pre-statutory tax loss of £6.4bn for 2014/15.
The loss – the largest suffered by UK retailer in history – comes from the reduced property value of Tesco’s UK stores as well as inventory impairments and its multi-million pound pension scheme.
Speaking on Radio 5 Live’s Wake up to Money programme this morning Barnett Waddingham, senior consultant at Malcolm McLean, said:
“There is no doubt about it,” he said, “that the current scheme is one of the best if not the best on the market offering as it does to Tesco employees a guaranteed risk-free (to them) way of accumulating valuable pension provision for their later lives.
“Tesco is now clearly going through a difficult patch in terms of its business affairs and is looking to improve its profitability and reduce costs on a number of fronts. Against this background and in the face of rapidly growing funding deficits it is hardly surprising that this very lucrative pension scheme may have to follow the example of many others in the private sector and ultimately close down.
“Should the scheme closure go ahead, existing entitlements to date will, of course, be preserved and it is hoped that Tesco being the good employer we know them to be will find it possible to provide an alternative scheme (albeit one of a defined contribution nature and less generous than the present one) which will enable their employees to continue making adequate provision for their retirement in years to come”
This cost-cutting measure was first announced in January, alongside plans to reduce head office staff by cutting thousands of jobs.
Sky News also reported last week that Tesco has been discussing revisions to their bonus plan with City institutions, saving money by only offering incentives for excellent performance.