Sainsbury's staff told to up pension payments

J Sainsbury announced today it would reduce the payout it offers workers with final salary pension schemes unless they agree to increase payments.

The UK's third biggest supermarket chain said it would be making a payment of £350m and increasing its contributions to the scheme in a bid to fund the deficit on its final salary schemes, estimated last October to stand at £582m.

The schemes closed to new members in January 2002.

Risk sharing

The retailer said that to provide a more balanced sharing of risk and cost between the company and the pension scheme members it would be asking active members to increase their contributions.

Members will be asked to pay in an additional 3% of their earnings on average. Anyone who fails to increase their payments will receive lower payouts when they retire.

Future pension provisions will also change to reduce the schemes' liabilities. The retailer will introduce controls on early retirement and put an end to the practice of automatically increasing a member's pension entitlement when they are promoted.

Sainsbury's plans to make two lump sum payments into its schemes: £150m in March this year and £200m in May. In addition, it will make a deficit payment of £38m a year from March 2007. Until now, it has made deficit payments of £20m a year.

Justin King, chief executive of Sainsbury's said: "We are pleased that we have been able to retain the defined benefit schemes for current members.

"Today's announcement demonstrates our commitment to our pension schemes by ensuring appropriate funding levels.

"The injection of £350m and the increased annual payments will fund the last reported deficit.

"In addition the increase in the members' contributions together with the changes to future benefits will achieve a more appropriate and balanced sharing of cost and risk."

John Adshead, chairman of the pension schemes' trustee boards welcomed the announcement.

"Following discussions with the company we believe that the agreement we have reached is a fair balance between the needs and expectations of members and the financial support provided by Sainsbury's to improve the funding of the schemes and increase the security of benefits."

Sainsbury's is one of many big companies currently facing a pension scheme deficit.

Falling stock markets and increased life expectancy have put a strain on final salary schemes in recent years and research from accountants Deloitte & Touche suggest that last year the total deficit among FTSE 100 companies had reached £75bn.

Yesterday, defence firm BAE Systems announced would be making a one-off contribution of £350m to its main UK pension fund as part of a strategy to tackle its £2.4bn deficit.