Expert slams Sainsbury’s switch on defined benefit pensions scheme

Sainsbury’s is trying to pass its final salary pension scheme off as “something it clearly isn’t”, according to a leading pensions expert.

Last month, the supermarket chain announced plans to inject £350m into its pension scheme. In return, the scheme’s 23,500 members were told that they must raise their contributions by 3% or expect reduced benefits.

Employees who refuse to raise their contributions beyond 4.25% of wages will be relegated to a new “cash balance” section of the scheme.

Those who save in cash balance will receive their own contributions, plus the company’s contributions of 9.75%, when they retire.

The savings will be inflation-proofed but despite being invested 60% in equities and 40% in bonds and property, employees saving in cash balance will not see the benefit of any investment returns, apart from non-guaranteed bonuses that may be added to their savings “from time to time”.

At least two-thirds of workers are expected to take the cash balance option.

John Ralfe, a pensions consultant, said that Sainsbury’s was “passing the scheme off as something it clearly isn’t”. In a research note for RBC Capital Markets, reported in the Times, Ralfe said cash balance savings were vastly inferior and more similar to a defined contribution pension.

But Sainsbury’s insisted the savings were still a form of final salary, or defined benefit, pension. “We believe that this is a viable choice that allows people to stay in the defined benefit scheme,” it said.

Meanwhile, Usdaw has called for talks with Sainsbury’s to discuss the final salary pension scheme. The shopworkers union said it planned to ask for improvements to the £3.9bn scheme.

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