John Lewis is ditching any link to final salary in its pension scheme in a bid to save £80m annually.

After the pension move from April next year, all 83,900 workers at the John Lewis Partnership, which also owns the Waitrose supermarket chain, will have access to a defined contribution scheme under which the company will match staff payments of up to 8% of pay.

After three years of service, workers’ pension pots will receive an additional 4% of pay from the company, regardless of whether they pay into the scheme or not.

The latest cut to benefits at the staff-owned retail group, which is seen as offering the gold standard in employment terms, comes after John Lewis slashed its annual staff bonus to the lowest level in 66 years after profits dived.

Until now John Lewis has been one of only a handful of UK businesses still offering a link to final salary in its pension scheme. The change comes after the group switched to the hybrid model four years ago in a previous effort to reduce costs.

It has been forced to close stores and lay off staff amid rising costs and a slowdown in consumer spending partly prompted by uncertainty linked to Brexit.

The group has been battered by the tough conditions on the high street, which have led to heavy discounting by the likes of House of Fraser and Debenhams – rivals to its department store chain that have fallen into administration.

It is also investing heavily in online shopping infrastructure as more people choose to buy from their phone or computer.

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Until now, John Lewis matched staff contributions of up to 4.5% for all workers.

Staff who had worked at least five years for the company were also assured pension payments of 1/120th of their final salary for every year worked without having to make any contribution. The company also put in contributions worth 3% of basic pay for those on the salary-linked scheme.

John Lewis said the new pension scheme was designed to be “more affordable, supporting the partnership’s strategy of improving its long-term financial sustainability”.

The group said the redesigned scheme would also mean a more equal distribution of profits among its workers.

The latest changes come as businesses, and in particular retailers, face a tough market and rising pension costs related to people living longer. Major retailers including Morrisons and Tesco closed their defined benefit schemes several years ago.

The independent pensions expert John Ralfe said the changes were a sensible move for John Lewis.

“No one should be surprised that John Lewis is closing its defined benefit scheme: they have been moving towards it since they halved the defined benefit four years ago. And virtually all other companies – especially retailers – have already closed their schemes,” he said.

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“Closing the defined benefit pension, reducing costs and risk, should help protect the annual bonus, which has been under threat. And partners may prefer no pension to no bonus.”

There had been fears that John Lewis would not pay a bonus at all in March this year. Instead the group paid out 3% of salary.

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John Lewis’s chairman, Charlie Mayfield, said in March the bonus had been cut from 5% a year before in order to reduce debts, keep investing and build up cash reserves to cope with the continuing uncertainty in the economy.



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