Notwithstanding this, the changes to the Tesco scheme still leave staff with a very attractive proposition. The company has not pulled back from underwriting its workers' future pensions. The scheme will still offer very attractive benefits and the changes will only apply to amounts of pension earned in the future.
This means that those closest to retirement will be relatively unaffected and will still receive most of their pension under the old terms at age 65 and could also opt to take the balance of the future pension earned from now onwards at a slightly reduced rate at age 65 as well.
After the government has changed its own pension up-rating from RPI to CPI it is likely that all private sector schemes will look to do the same. Tesco, however, may have changed its inflation linking to CPI, but the increases will be capped at 5%, rather than legal minimum 2.5%, which is attractive for the members and workers are not being asked to increase their own contributions.
As interest rates have fallen so far, leading to sharp rises in pension scheme deficits, it is inevitable the Tesco move will more likely be the first of many more to come, as companies struggle to find ways to control their pension costs as life expectancy also rises, which of course is great news, and as the state pension age and public sector pension ages increase, all private sector pensions are likely to increase their standard pension age in line with Government’s own practice.
In summary, it seems Tesco is blazing a trail which private sector employers will follow, but it still leaves its own workers with a very attractive pension scheme in which investment and annuity risk and costs are borne by the employer rather than the individual worker.