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Tesco raises pension age to 67

Supermarket staff will have to work an extra two years for their full payout.

Tesco, Britain's largest private sector employer, has become the first big company to raise its pension age from 65 to 67. The supermarket group told 172,000 of its staff yesterday that they would have to work the extra two years in order to quality for their full retirement package. The changes will take effect from June this year.

Simultaneously, Tesco has announced that it will switch the inflation measure by which it calculates its pension fund. A move from the Retail Prices Index (RPI) to the lower Consumer Prices Index (CPI) could mean employee payouts upon retirement are slashed by up to 15 per cent.

Tesco said the changes were "essential . . . to ensure [the scheme] is sustainable for the future".

Around 60 per cent of Tesco's workforce contribute to a pension pot. The company's pension scheme operates by a now unusual "career average" system, whereby a retired employee's payments are based on the average salary over their career. This element of the defined benefit arrangement will not be effected by the new changes.

A spokesperson for the supermarket chain said:

We are retaining the defined benefit pension scheme when most companies have closed theirs. Only three other FTSE 100 companies still have one. Because people are living much longer pensions cost much more to provide. These changes make our defined benefitscheme sustainable.

Tesco is the second largest retailer in the world by profits and is most likely the first major private sector employee in the UK to raise its retirement age. The National Association of Pension Funds's chief executive, Joanne Segar, said of the announecment:

Asking staff to retire later and using the CPI measure of inflation are ways of making pensions like this more sustainable. Tesco certainly won't be the last to look at these options, and the government has made similar proposals for the public sector.

Alice Gribbin is a Teaching-Writing Fellow at the Iowa Writers' Workshop. She was formerly the editorial assistant at the New Statesman.

Photo: Getty Images
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A simple U-Turn may not be enough to get the Conservatives out of their tax credit mess

The Tories are in a mess over cuts to tax credits. But a mere U-Turn may not be enough to fix the problem. 

A spectre is haunting the Conservative party - the spectre of tax credit cuts. £4.4bn worth of cuts to the in-work benefits - which act as a top-up for lower-paid workers - will come into force in April 2016, the start of the next tax year - meaning around three million families will be £1,000 worse off. For most dual-earner families affected, that will be the equivalent of a one partner going without pay for an entire month.

The politics are obviously fairly toxic: as one Conservative MP remarked to me before the election, "show me 1,000 people in my constituency who would happily take a £1,000 pay cut, then we'll cut welfare". Small wonder that Boris Johnson is already making loud noises about the coming cuts, making his opposition to them a central plank of his 

Tory nerves were already jittery enough when the cuts were passed through the Commons - George Osborne had to personally reassure Conservative MPs that the cuts wouldn't result in the nightmarish picture being painted by Labour and the trades unions. Now that Johnson - and the Sun - have joined in the chorus of complaints.

There are a variety of ways the government could reverse or soften the cuts. The first is a straightforward U-Turn: but that would be politically embarrassing for Osborne, so it's highly unlikely. They could push back the implementation date - as one Conservative remarked - "whole industries have arranged their operations around tax credits now - we should give the care and hospitality sectors more time to prepare". Or they could adjust the taper rates - the point in your income  at which you start losing tax credits, taking away less from families. But the real problem for the Conservatives is that a mere U-Turn won't be enough to get them out of the mire. 

Why? Well, to offset the loss, Osborne announced the creation of a "national living wage", to be introduced at the same time as the cuts - of £7.20 an hour, up 70p from the current minimum wage.  In doing so, he effectively disbanded the Low Pay Commission -  the independent body that has been responsible for setting the national minimum wage since it was introduced by Tony Blair's government in 1998.  The LPC's board is made up of academics, trade unionists and employers - and their remit is to set a minimum wage that provides both a reasonable floor for workers without costing too many jobs.

Osborne's "living wage" fails at both counts. It is some way short of a genuine living wage - it is 70p short of where the living wage is today, and will likely be further off the pace by April 2016. But, as both business-owners and trade unionists increasingly fear, it is too high to operate as a legal minimum. (Remember that the campaign for a real Living Wage itself doesn't believe that the living wage should be the legal wage.) Trade union organisers from Usdaw - the shopworkers' union - and the GMB - which has a sizable presence in the hospitality sector -  both fear that the consequence of the wage hike will be reductions in jobs and hours as employers struggle to meet the new cost. Large shops and hotel chains will simply take the hit to their profit margins or raise prices a little. But smaller hotels and shops will cut back on hours and jobs. That will hit particularly hard in places like Cornwall, Devon, and Britain's coastal areas - all of which are, at the moment, overwhelmingly represented by Conservative MPs. 

The problem for the Conservatives is this: it's easy to work out a way of reversing the cuts to tax credits. It's not easy to see how Osborne could find a non-embarrassing way out of his erzatz living wage, which fails both as a market-friendly minimum and as a genuine living wage. A mere U-Turn may not be enough.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.