Tesco has agreed a pension deficit funding plan with its trustee for its defined benefit scheme, comprising cash contributions of £270 million per year.
The supermarket giant is also consulting with employees on plans to close its defined benefit (DB) pension scheme and replace this with a defined contribution (DC) scheme.
Tesco proposed these pension changes in January 2015.
Its deficit funding plan was detailed in Tesco’s preliminary results for 2014 and 2015.
Dave Lewis, chief executive of Tesco, said: “It has been a very difficult year for Tesco. The results we have published today reflect a deterioration in the market and, more significantly, an erosion of our competitiveness over recent years.
“We are making deep changes to the way we organise and run our business, with a simpler, more agile office team, more colleagues serving customers and a new approach to the way we work with suppliers.
“I do not underestimate how difficult some of these changes have been for the team and I thank everyone for their professionalism and contribution at this time of great change.”
Malcolm McLean, senior consultant at Barnett Waddingham, added: “There is no doubt about it that the current [pension] scheme is one of the best if not the best on the market offering as it does to Tesco employees a guaranteed risk-free [to them] way of accumulating valuable pension provision for their later lives.
“Tesco is now clearly going through a difficult patch in terms of its business affairs and is looking to improve its profitability and reduce costs on a number of fronts.
“Against this background and in the face of rapidly growing funding deficits, it is hardly surprising that this very lucrative pension scheme may have to follow the example of many others in the private sector and ultimately close down.
“Existing entitlements to date will, of course, be preserved and it is hoped that Tesco being the good employer we know it to be, will find it possible to provide an alternative scheme (albeit one of a defined contribution nature and less generous than the present one) which will enable its employees to continue making adequate provision for their retirement in years to come.”
