Staff at the John Lewis Partnership have backed a series of pension reforms that includes closing the group’s generous defined benefit scheme in favour of cheaper defined contribution arrangements.
The vote in favour of the changes, which was unanimous, was made by the Partnership Council, a group of 58 people that represent over 80,000 staff or partners. More than 10,000 submissions were received during a year of consultation.
The existing defined benefit scheme, to which staff do not have to contribute, will close next year. Existing benefits accrued within the scheme will be preserved, but no further entitlements will be built up and employer contributions will be directed instead into a defined contribution scheme, where future benefits depend on investment returns.
John Lewis said that the changes would afford it more flexibility. The group, which is owned by its staff, known as partners, expects to save more than £80m a year as a result. Low interest rates and higher life expectancy have made defined benefit schemes very costly to operate, and despite making changes in 2015, the scheme had a deficit of £479m at its last actuarial valuation in 2016.
It added that the changes also made pension provision fairer overall; currently, staff have to contribute to a defined contribution plan for five years before they can access the defined benefit scheme.
A John Lewis spokeswoman said she could not comment on whether the revisions to the pension plan would swell the annual staff bonus, which in March was cut to 3 per cent of salary, its lowest level since the 1950s.
“The changes give us more financial flexibility but the bonus is decided in March, which is a long way off. There is no direct link between the two,” she said.
However, at the time of the last bonus announcement, outgoing Partnership chairman Charlie Mayfield said that staff increasingly faced a choice between having money today in the form of bonuses or, at a later date, as a pension. “You can’t have it twice,” he said.
John Ralfe, an independent pensions consultant, said that the proposed defined contribution arrangements looked generous. The company will contribute 8 per cent of salary irrespective of whether or not the employee contributes. After three years’ service, that increases to 12 per cent.
He added that if employees believed the changes made higher bonuses more likely, then it was unsurprising that they voted in favour. “People will always say that if it’s a choice between pension in future and bonus now, I’ll take the bonus today.”
Compared with other department store groups, John Lewis is performing relatively well because of its strong balance sheet, middle-class customer base and smaller store estate.
But the department stores have nevertheless been hurt by the distress elsewhere in the sector, which has prompted heavy discounting. Group profits almost halved to £160m in the year to January 2019, despite an improved performance at the upmarket Waitrose food stores.
The company had previously said that heavy investment in ecommerce, staff training and store improvements would limit profit growth in years to come.