WH Smith sell-out on pensions

By RICHARD DYSON
Updated: 07:55 EST, 2 April 2007

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Tower Bridge had just opened and Queen Victoria was still on the throne when the WH Smith pension scheme was set up. It has survived two world wars and countless economic and corporate upheavals.

But it will close tomorrow because, says management, the risks of keeping it open are too great.

The scheme, which started in 1894, is a final salary one - where workers' retirement income is linked to their years of service and their wage at retirement.

With schemes like this, the company promises to pay a pension for as long as retired workers live.

WH Smith management, led by chief executive Kate Swann, says it has poured £282m into the pension over the past four years and will keep contributing for several years.

The pension entitlements built up by workers so far will be safe, but deferred until they retire. From tomorrow, these workers will be switched to a new, far less generous scheme, where they - rather than the company - shoulder all investment risk. Contributions by WH Smith will almost certainly fall.

One store manager, who did not want to be named, said: 'I and my colleagues have loyally committed a total of 20,000 years of work between us.

'We've accepted that the final salary scheme is too expensive for the company to continue, but it has not accepted in return that it should compensate us more for the breach of a long promise to look after our retirements. I will be worse off by over £30 a week.'

The unions representing WH Smith staff are fighting for a more generous pension replacement. Paul Lee of the Retail Book Association, the union established for WH Smith's employees in 1919, says: 'What Smiths is doing is legal but not moral.

'This will have a devastating effect. We want it to chip in more to a replacement scheme, but it won't listen.'

The RBA has advised members to sign up to the inferior scheme on offer, but also to register their protest in writing to Swann so that the union can continue to press for pension redress.

About 600 will do this, he reckons, though he says most members are afraid to speak out in case they are sacked. The RBA claims WH Smith will save £5m a year. Amicus, the other union representing workers at the High Street retail giant, reckons the annual savings will be £7m. Spokeswoman Ann Field says:

'The savings will go straight to the company's bottom line.' While ordinary workers will suffer, Field says: 'Kate Swann will probably get a bigger bonus as a result of making these savings. This is the worst case of a final salary scheme closure I have ever seen in terms of what is being offered as a replacement.'

WH Smith insists that its measures are necessary to keep the scheme in good health. A spokeswoman says: 'This is not about cost-saving but about managing risk and protecting the long-term future of the scheme.'

She stresses that the pension scheme covers only 11% of the company's staff. But this is of scant consolation to the 1,600 people involved. By the RBA's calculation, workers - many low-paid and long-serving - stand to lose as much as a third of their retirement income.

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'This is a pay cut,' says actuary Jeremy Dell of consultant Lane Clark & Peacock in London. 'Staff were told they were entitled to something, now they are getting something else that is less generous.' But Dell says he has seen this again and again. 'It isn't only to save money but to reduce risk,' he says. 'Companies have been bitten by rising longevity and falling WH Smith sell-out interest rates. They don't want their risk to grow.'

Final salary schemes, which used to be the norm for works pensions, are closed to new members in two out of three cases. But companies are also taking steps to cut benefits for existing members. WH Smith's move to stop existing members building more contributions has also been taken by office services firm Rentokil and retail giant Debenhams.

This is the extreme end of the spectrum, according to Dell. Less drastic are steps such as asking workers to give more themselves to their final salary schemes, or to retire later. Dell says: 'A few years ago, a 6% employee contribution was regarded as high. Now we regularly see employees asked to contribute 11 or 12%.'

Rewarded

BP has faced a storm of bad publicity this year after its Alaskan oil spill, the backlash from the Texas City explosion in 2005 in which 15 people were killed and the shock early retirement of chief executive Lord Browne.

But the oil giant attracts nothing but praise in one respect - the unrivalled generosity and security of its pension scheme.

'Not a day goes by that I don't appreciate my pension,' says John Bellamy, 57, who retired two years ago as a fuel tanker driver and engineer. I started with BP in 1970. Back then we had to pay part of our wages into the pension scheme. But I remember the day in the Eighties when our manager said, ''Good news. From next month you will all be better off because the company is now going to pay all your pension contributions.'

John, from Nuneaton, Warwickshire, worked for 35 years at BP. He knew the value of the pension scheme. In fact he contributed extra money so he could retire five years ahead of the normal retirement age of 60 on a full inflation-linked pension equal to two-thirds of his final salary.

If he dies before his wife, Linda, 56, she will get two-thirds of his entitlement for life. The couple were financially prudent in other ways, paying off their mortgage as fast as possible and buying BP shares through the company share scheme as well as making other savings.

'There were times when I looked around for other jobs,' John recalls, 'but the pension issue mattered. I worked for it, mind you. There were times when I'd do shifts from five in the evening to five in the morning. But I know I was lucky. When I see other companies cutting back pensions I wonder how people will manage.'