John Lewis Partnership, London, will adopt a hybrid defined benefit/defined contribution retirement plan, following a review of its £3.2 billion ($4.8 billion) pension fund.
The firm announced the review in January 2014.
The company said in a statement published on its website Monday that it would continue to offer a non-contributory pension fund based on an employee’s final salary and years of service. However, this will be at a reduced accrual rate of 1/120th of their final pay per year for future service, effective April 2016.
The reduced accrual rate of the DB section will be offset by an increase in company matching to the DC plan. In the statement, John Lewis Partnership said employees who are participants in the DB fund will also receive a 3% employer contribution toward their DC plan.
In the DC section of the retirement plan, employee contributions were previously matched by the plan sponsor up to 4.5% of pay for the first three years of employment. That will be extended to the full length of an employee’s time with the company under the new arrangement.
The final change will increase the waiting period for new employees before they can join the DB section of the retirement plan. Starting in April, this period will increase to five years from three years.
“The John Lewis Partnership pension is a defining element of our business, and this decision will ensure that it remains so in a way that is fair and affordable,” said Nat Wakely, director of the pensions benefit review, in the statement.
The partnership board and chairman have agreed to the changes. They will take effect for new employees starting in April, and existing employees starting in April 2016.
The latest John Lewis Partnership annual report and accounts, published April 25, 2014, showed a total accounting pension deficit of £1 billion.
Andrew Moys, director of communications, could not be reached for comment by press time.