One of the last defined-benefit pension schemes in the private sector is under threat because of the crisis that has engulfed Tesco.
Dave Lewis, chief executive of Tesco, is considering closing the retailer’s defined-benefit pension scheme to new members as part of his plan to shore up the company’s battered balance sheet.
Tesco’s pension scheme is one of the biggest in the country. It has 350,000 members, including 203,000 active members of staff. The scheme is famously generous, offering a predetermined monthly payout based on average career earnings.
However, Britain’s biggest retailer is nursing a £3.4bn pension deficit in the face of falling sales and threats from credit rating agencies to downgrade its debt to junk status.
It is understood that an overhaul of the scheme is one of the options being considered by Mr Lewis as he looks at ways to bolster Tesco’s finances.
The company’s latest annual report shows it cost Tesco £542m in the last financial year to service the pension scheme and that its obligations under the defined benefit pension scheme are more than £11bn.
Tesco could announce changes to its pension schemes as early as Thursday, when Mr Lewis is scheduled to update on his plans to shore up the retailer’s balance sheet alongside a Christmas trading statement.
City sources expect Tesco to announce asset sales and cost-cutting measures worth hundreds of millions of pounds. The assets being considered for disposal include online streaming service Blinkbox, Tesco Bank, Tesco’s Asian operations and Dunnhumby, the analytics tool behind Clubcard.
However, there are growing expectations that Tesco enjoyed an improvement in its performance in the run-up to Christmas thanks to Mr Lewis’s move to cut prices and increase the number staff in its supermarkets.
David McCarthy, analyst at HSBC, said he expected Tesco to report a 2.5pc fall in like-for-like sales for the six week Christmas period, better than the 5pc drop in sales he expects for the quarter to the end of November and ahead of the 3pc fall pencilled in for rival Sainsbury’s.
He said: “If we are right, then this would represent a step change in momentum, which should continue throughout 2015 as management builds on early successes.”
Nonetheless, Mike Dennis, analyst at Cantor Fitzgerald, said the City wanted answers on Tesco’s underlying profit margins – which could be as little as 1pc – alongside news about the balance sheet.
He said: “We believe the UK margin issue needs to be satisfactorily explained before we can judge the new CEO on the plans for a UK recover.
“In addition, we need to separate the UK operational issues against a long list of expected announcements around asset disposals – which could be £4bn of asset sales and £300m of associated profit – a £2bn write down in UK land and existing supermarkets, a closure of the existing pension scheme and £200m-plus of additional pension contributions, a new pricing strategy, store and supply chain cost savings as well as head office closures and cost reductions.”
Tesco declined to comment.
Source: The Telegraph