UK supermarket Tesco has confirmed the closure of its defined benefit (DB) pension fund for staff and the creation of a 7%-matching defined contribution (DC) replacement by November.
The £8.1bn (€11bn) Tesco Pension Scheme was one of a handful of open DB schemes among the UK’s largest employers, with the company opting to use the career-average salary deal to comply with auto-enrolment.
The company, however, after running into financial difficulty, told investors in January it would consult on the closure of the scheme to future accrual.
Tesco said it would now offer a matching DC scheme, with employee contributions of between 4% and 7% matched by the supermarket.
It will also seed DC saving pots with one week’s earnings for staff, or a minimum of £100.
The supermarket, which once accounted for close to one-third of all grocery spending in the UK, will now also offer life assurance of five times an employees salary, after originally proposing four.
Consultation began in June after the scheme’s triennial review revealed a nearly 200% increase in the scheme’s deficit.
With trustees of the scheme, Tesco approved a new £270m annual deficit-reduction payment, which came as the company faces investigations in the US and the UK over its accounting.
The valuation showed the deficit rising from £934m in 2011 to £2.8bn in 2014, with its financial statements showing a £3.9bn deficit on an IAS 19 basis.
At the time, Tesco cited the impact of an 80-basis-point fall in corporate bond yields.
A Tesco spokesperson said the supermarket was committed to offering retirement benefits for its staff and that it had listened to the concerns from staff and trade unions.
The Union of Shop, Distribution and Allied Workers (USDAW) said it worked to gain a number of concessions when it began negotiating with Tesco earlier this year.
Joanne McGuinness and Pauline Foulkes, of the USDAW’s national offices, said the union had worked hard to ensure the scheme remained competitive for staff in the sector.
“It’s always very disappointing to see a final salary scheme close,” they said.
“USDAW believes occupational pensions are an essential part of any employment package and provide essential income in retirement for employees. We expect more information and detail to be available in October.”