Tesco

[greenrook]

I read that Tesco are considering closing their pension scheme as a money-saving measure. What does that mean, that they will not accept new staff members into the scheme? Sorry to sound a bit dim.

[AlwaysConfused]

IT seems that it will be closed to new membershttp://www.thisismoney.co.uk/money/news/article-2898917/Staff-pension-scheme-threat-Tesco-looks-cut-costs.html

[AlwaysConfused]

http://www.thisismoney.co.uk/money/news/article-2898917/Staff-pension-scheme-threat-Tesco-looks-cut-costs.html

[Zacs-Master]

It is their final salary pension scheme and it's not decided yet as Mr Lewis is beginning a consultation shortly, I believe.

There's an explanation of 'final salary pensions' here:
http://www.which.co.uk/money/retirement/guides/company-pensions-explained/defined-benefit-and-final-salary-pensions/

[Buenchico]

Tesco currently operates a 'defined benefit' pension scheme where (irrespective of the fluctuations of financial markets) the amount someone will receive as their pension is guaranteed (based upon the number of years that an employee has paid into the scheme and their final salary).
http://www.which.co.uk/money/retirement/guides/company-pensions-explained/defined-benefit-and-final-salary-pensions/

They'll be switching to a 'defined contribution' scheme where money is paid into a fund which is then invested, with the amount of pension at the end being dependent upon how well those investments have performed.

Such a pension system ensures that the employer can't be left having to fund a shortfall (as can happen with a defined benefit scheme) but means that there's less certainty for employees about how much pension they'll get.

[VHG]

It is only their final salary pension scheme they are closing.

The "problem" with final salary pension schemes (for the company running it) is that they are expensive to run.

Also if the pension "pot" (the pot used to pay out all the pensions) does not have enough money to pay everyone's pensions then the company (ie Tesco) have to top it up out of their profits.

So this reduces their profits, and also means they have less money to pay out to their shareholders (who help fund the company).

Many many companies have closed their final salary pension schemes over the last few years, I believe it is mainly civil servants and other organizations like the police and fire brigade who still get them.

Of course the government are trying to get rid of final salary pension schemes as well which is why the fire brigade and teachers and others go on strike every now and again.

The problem is that the country cant AFFORD to pay all these civil servants and other workers (and MPs!) when they retire with their huge pensions, the money needed to pay them all will bankrupt the country.

I was lucky enough to work for a large IT company all my life on a final salary pension so now have a very generous pension.

[greenrook]

I thank you all for your answers. I had not recognised the distinction between the 'final salary pension' scheme and the 'defined benefit scheme'. I can now understand why the new CEO would be looking at the situation.

[Old_Geezer]

It means that in these economic times they no longer value staff as much as they once did. The company saves money and the loyal employees face hardship in their twilight years since they didn't get paid enough to put more away to compensate.

[factor-fiction]

Perhaps that's better than going out of business though.

[Old_Geezer]

Final salary is defined benefit. It defines what you get as pension. It is defined contribution that differs since the company tells you what they will pay into the scheme, which works out less or they wouldn't be doing it, and you take pot luck what it'll provide on retirement.

[Old_Geezer]

I doubt that's often the incentive. Increasing the bottom line for profits to investors is more likely.

[Peter Pedant]

// What does that mean, that they will not accept new staff members into the scheme? //

they could refuse to accept new members into that [old] scheme and only offer the new ( crappier ) one which would still be a good deal

or

they could close the old scheme and make everyone transfer to the new crappier scheme ( but the law means that the old one still have the rights they accrued under the old scheme )

The NHS did the second option in 2008 and are going to have another go at cutting costs in 2016

You will have to ( if you are a Tesco employee ) wait and see what they send out to you. They cant change it all without telling you and they cant change benefits you have already accrued under the old scheme ( without your permission )