I’ve followed Tesco’s progress towards the staging of auto-enrolment closely this week. I think we are at a tipping point in pension provision in Britain, a point which could see the return of pensions that do what they say on the packet (defined benefit if you like).
If this happens, it will to no small part down to Tesco and some other “early staging” mega- employers, and the approach they are taking to providing pensions to their staff.
If there’s one thing for sure, Tesco do not splash cash unnecessarily. Standing in the queue for some sliced ham at their Chineham store on Monday, I heard the sad tale of the broken cheese slicer which Tesco would not replace as their cost-cutting budget did not include £100 for a new machine.
You broke the new one - you use the old one.
It sent a chill down my spine, if I drop my laptop and break the screen, I expect it to be replaced! The world of retail is about the number of staff per square ft of floor space, it is a business governed by the finest of margins – maybe I should think more carefully about the way I treat my company property.
Which gets me asking, why the heck are Tesco being so damned generous to their staff over pensions.
- They are contractually enrolling all but a handful of staff into a career average pension scheme. They are auto-enrolling the rest (for the subtle differences refer to your local neighbourhood pension lawyer)
- The career average pension not only ensures staff of a defined benefit depending on lifetime earnings but “insures” staff against them living too long.
- The policy of the company appears to be to keep the scheme open to staff who “cease membership” – you don’t “opt-out” as you do when auto-enrolled.
- When people cease membership, they are bought back into the state second pension and a refund of contributions is made less a 20% tax charge ( a further risk to Tesco compared to the “contra” method used for hybrid schemes under auto-enrolment (speak to lawyer).
Now , put together , this seems a pretty massive step for Tesco and a significant act of generosity from a company that seems reluctant to buy staff replacement cheese slicers.
I have two questions
- Am I missing something in Tesco’s scheme design which means it is too good to be true?
- If not, why are Tesco making this enormous committment to fund guaranteed pensions for their staff?
In my generous soppy heart, I would like the answer to be “because Tesco are at the vanguard of a shift in employment practice”. My head is telling me something different.
Tesco employ close to 300,000 people in the uk, more than half are already in this good looking scheme and if my facts are right – this looks like it will have the largest private sector coverage of any pension in the UK by the end of the year (it may already have).
My third question is
“if Tesco are really trying this hard, why aren’t they getting a bit more publicity from pension experts?”.
I’ll reserve judgement on all three questions till I get some feedback on this blog!
- “Ambitious” pensions can save you from staging a disaster (henrytapper.com)
- New govt pension scheme could be risky for savers (confused.com)
- Are you in or out? Decision day looms for new pension schemes (scotsman.com)
- How sure are you that you’ll get your pension promise? (henrytapper.com)
- Does your pension scheme need advice? (henrytapper.com)
- Bank of England: ‘QE has not harmed pensioners’ (itv.com)
- Auto enrolment – basics for business (bmi4sme.posterous.com)
- The workplace pension changes that affect you (confused.com)
- Is Steve Webb at war with personal pensions? (henrytapper.com)
- The Defined-Benefit Plan (moneymanager.com)