Global retail & wholesale business Alliance Boots yesterday confirmed that it has offered members of the Boots Pension Scheme a one-off increase to part of their pension.
The offer would see a one-off increase given to policy holders now in return for giving up future inflationary increases on that part of their pension.
Last year, the business outlined plans to close its final salary pension scheme in favour of moving to a defined contribution scheme, a less generous package from an employee perspective though seen as a lower risk for the company during the current tough economic climate.
Speaking at the time of the announcement, Alliance Boots Chairman Stefano Pessina told the Evening Standard: “Having very carefully considered all options, the proposed pensions changes for UK employees is the right step to take.
“This will help protect the business from the effect of pension funding volatility and ensure the long-term sustainability of the group’s UK retirement savings schemes.
“We have seen many large businesses, like ours, make this move and our aim is to encourage greater participation from all UK employees in a competitive and fairer retirement savings scheme.”
Alliance Boots, owned by private equity firm KKR, has pointed out that the changes are optional and that those covered by the existing plan have until the year’s end to make a decision on their financial choice.
A spokesman for the company explained the reasoning behind the offer, which was sent in writing to current pensioner and dependent members of the scheme.
“This offer has been made in order to provide current pensioner and dependant members of the scheme with greater flexibility and choice over their pension payments, while also managing the scheme’s funding position and the risks associated with its pension liabilities more effectively,” said the spokesman.
The development may, however, lead to the mis-selling of pensions, as the Pensions Regulator points out that the level of future inflation must be taken into account with regard to most pension schemes.
In a recent report, the government body, which suggests seeking help from an independent advisor, warned: “In difficult economic times, your pension fund may be worth less than you expected, so getting the best deal is even more important.”