The decision by the troubled retailer comes barely a month after it announced it would close the £314m scheme to new members, largely due to low take-up and a £140m funding deficit. It follows a period of poor sales and takeover bids.
In a statement to its pension scheme members, the retailer explained its move.
“The contribution rate would have had to increase to more than 15% in order to make a significant impact on the deficit. Active members would then be funding the benefits for members who no longer contribute.
“Furthermore, very few new colleagues join the scheme and we want to help more people to provide something for their retirement.”
A valuation of the fund had shown that between March 2005 and March 2008, the liabilities of the scheme rose by 80.5%, while the assets rose by 38.7%.
In a remarkably candid statement to staff, the retailer said that a decline in the funding position for its scheme had coincided with a decline in fortunes for the company.
It estimated that it would have to pay more than three times the current contributions each year to pay off the deficit over 10 years.
The firm said that once the scheme closes to future accrual on January 31, it would seek to ‘secure’ the benefits. This is likely to mean a buy-in for the liabilities of its 1,500 pensioners.
The retailer will now open a group personal pension scheme on February 1 next year, which will be run by BlackRock.
The scheme will take a minimum of 3% contributions from employees – the minimum for its final salary scheme was 5% – and company contributions are expected to start around the same size.
Once the final salary scheme is closed, employees will be entitled to death-in-service payments of only two times their salary, which is half of their previous entitlement.
Woolworths is in consultation with the unions and its members on the changes until December 5.
David Rowley
