Ikea pays pension contributions as bonus

More organisations could consider performance-related pension contributions as a way of giving a bonus to employees for reaching targets.

Ikea Group became one of the first organisations to take this approach with the launch its reward programme Tack! at the end of last year. Through the scheme, Ikea will pay a total €100 million (£83.6 million) in pension contributions to reward employees with at least five years’ service, assuming pre-agreed global sales targets are reached.

All 136,000 employees across 26 countries will have access to the scheme, including 7,200 in the UK and Ireland.

Paul Macro, head of UK defined contribution retirement at Mercer, said: “It’s not [an arrangement] which is particularly common.”

More than 55% of Ikea Group’s UK workforce have worked for the organisation for the required five years, meaning 4,000 employees are eligible for the first pay-out in September 2014 of an estimated £500 to their Retirement Income Scheme, part of a Legal and General master trust.

Helen Gilchrist, senior consultant at Towers Watson, said: “More organisations could consider it and it does encourage retention with a five year levy.

“It’s not a common approach and it could be a cost issue. It’s cheaper to pay somebody a bonus in pension contributions rather than a monetary bonus because employers do not have to pay the tax and national insurance on it.”

But Macro questioned whether the pension bonus will be valued. “Would staff prefer cash in their hands than a pension contribution? Probably,” he said. “But things have changed over the past few years with auto-enrolment and now pensions are a bigger thing for employees.

“There’s a growing recognition that money needs to be put in and if there is spare money then put it into a pension. It’s not a bad place to put it and I suspect Ikea has taken advantage of that thought.”

Performance-related bonus

Tack! follows the home furnishing retailer’s introduction of an annual performance-related bonus programme. Based on positive sales growth, employees are currently estimated to be on track to receive the bonus, which could see an employee earning £6.99 an hour pocket an extra £1,535.

Macro added: “It’s not just linking to pension payments on performance but if certain targets are met then there is a whole range of thank yous, which will make it more of a benefit to staff.

“Perhaps we will start to see employers link global performance to staff incentives.”