John Lewis is conducting an extensive two-year review into its pension  provision after revealing its final salary scheme deficit rose by almost 29% in  2012.

Can this great company maintain its final salary arrangement or does something need to give?

This question is not just being asked at John Lewis, it is being asked in Whitehall, particularly by the arch-proponent of the Defined Ambition pension – Steve Webb.

The threat to John Lewis’s  scheme is financial. Quite simply, they face the choice of paying off their deficit within a reasonable “recovery period” or building new stores.

Put in union-speak “jobs or pensions?”.

John Lewis do not have a third way, they have no shareholder to whom dividends can be paid, they can only distribute profits to “partners” as bonuses, or through pension payments or through expanding and modernising the business.

If they do not expand and modernise, they risk their long-term capacity to pay bonuses and fund pensions. The choices are neither simple or easy; as I said – something has to give.

I was speaking with Jonathan Camfield a very perceptive actuary on Friday. His view was that the lasting pension legacy of Gordon Brown’s tenure as Chancellor was the announcement in his March 2003 budget of a move to guarantee pension rights which became enshrined in law in the Pension Act of 2004. The introduction of a Statutory Funding Requirement for pension schemes marked the point at which pensions stopped being an activity of mutual endeavour and became a corporate liability.

How John Lewis must wish that had never happened!

How Steve Webb must wish that he could return to a world where the pension contract between member and employer was one of mutual respect and understanding and not based upon statutory obligations!

The obligations that Gordon Brown visited on pensions are onerous enough to have collapsed defined benefit provision well beyond the declines illustrated in the chart above.

If the next European Pensions Directive is enacted then the numbers of private sector workers accruing defined benefits will approximate to zero as we discover just what “guarantees” mean in a pan-European insured sense.

The management of John Lewis clearly recognise the threat

The partnership admitted that funding the scheme was the largest single  annual investment it made and that it had also pumped £125m into it in  January.

The accounting charge for the pensions included within the operating profit  was £138.1m up 11.4% (£14.1m) on last year and was due to the change in the  financial assumptions and growth in scheme membership.