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.