Tesco Pension Age Hike Every Little HelpsA Bit Less
Tesco, the UK's largest private sector employer, has announced the age at which their employees can now claim their full pension has been raised from 65 to 67.
This is part of the retailer's strategy to try and reduce the cost of its pension scheme. It also intends to reduce the cost of inflation on its pension payments by switching from the retail prices index (RPI) to the consumer prices index (CPI) when it calculates its annual employee pension increases.
What this means is Tesco has opted for the 'cheaper' option for increasing workers' pensions annually, as the CPI excludes costs like mortgage payments, council tax rises and house price depreciation in its calculations.
The switch will likely mean two things; that Tesco workers will see an up to 20 per cent reduction in payouts upon retirement, and that more companies will follow suit.
Tesco's defined-benefit pension scheme, which started in 1973, is famously generous and stands head and shoulders above the majority of the large employer crowd with its predetermined monthly payout based on career earnings.
But like most employers it has suffered the slings and arrows of economic conditions.
It was also first defined almost forty years ago when pensioners were expected to live until 77 on average.
An average 40-year-old Tesco employee is now expected to live until the age of 90 and the company scheme has 293,000 members, including 172,000 active workers.
Those are important numbers when considering the type of lifestyle you expect to have and the length of retirement for which you need to plan.
While it's likely that the announcement will be met with huge amounts of resistance the economic reality for business is that change needs to happen, and for individuals that private pensions and a good plan for retirement is now a necessary part of your working life.