John Lewis Partnership is reviewing its £3.2 billion ($5.3 billion) defined benefit pension fund and is looking to adopt a hybrid DB/DC offering, building on the current DB and DC sections of the same fund, confirmed a spokesman for the company.
The spokesman said the pension fund has a DB and DC section, but the DC part is currently very small. “We would anticipate that as a result of the changes we keep the same approach but that the DC section will be bigger as covers a longer period of service,” he said.
The U.K. firm is proposing to continue to offer its DB fund but at a reduced accrual rate. The spokesman said John Lewis was not yet disclosing this reduced rate, but that the aim of the review was to offer “a similar pension at retirement under the new proposed scheme, as (employees) would have under the existing scheme.”
He said the DB fund covers more than 110,000 members, of which 48,423 are active.
The reduced accrual rate of the DB section would be offset by an increase in company matching to the DC section under the proposal.
The retirement age for employees would be linked to future increases in the U.K. state pension age, and pension increases would be limited to the consumer price index and capped at 2.5%, rather than linking to the Retail Price Index.
The proposal follows briefings and discussions with employees. John Lewis’ Partnership Council, the body through which employees have a say in running the company, will vote by the end of the year.
“The John Lewis Partnership pension is a defining element of our business,” said Nat Wakely, director, pensions benefit review, who authored the draft review, in a news release. “We are determined that it should remain so while ensuring that the scheme is sustainable for the long term.”
Agreement must be sought from the Partnership Council, company’s board and chairman, Mr. Wakely said. “This ensures that partners play a key role in determining how the partnership continues to offer a pension that is affordable and fair,” he added.
According to the latest valuation, as of March 31, the company’s DB pension fund was running a deficit of £840 million. There is a 10-year plan in place to eliminate the deficit, including cash contributions of £44 million a year and a one-time payment this month of £85 million. Investment returns on the pension fund’s assets are expected to meet the balance of the deficit, according to the release.
