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Last Updated: Thursday, 2 February 2006, 15:33 GMT
Harrods shutting pension scheme
Harrods store in Knightsbridge, west London
The new schemes will be based around investment plans
Famous London department store Harrods is notifying its staff about closing its final salary pension plan to new and existing employees.

It proposes the final salary pension scheme will be closed to existing and new employees at the start of April.

Harrods has said the decision was "not taken easily", and that a new money purchase scheme will be introduced.

The Transport and General Workers Union said staff were "shocked", and that it wanted talks on the issue with Harrods.

The union said there were currently 1,500 members of the pension scheme who will be directly affected by the change.

The department store, based in Knightsbridge, said "the cost and volatility of continuing with the plan presented an unacceptable future risk for its employees and the group".

Individual accounts

Harrods said longer life expectancy, lower interest rates, higher taxes and low investment returns recently had all contributed to increased funding deficits and the cost of providing future defined benefit pensions.

It would not comment on the details of the new scheme, but the union said staff had been sent letters saying the company would contribute 4% to the scheme if staff paid in 2% or more of their salary, rising to 8% if they paid in 5% of their wages.

This proposal intends to secure the current entitlements whilst negating the risk of further potential deficits in the future
Harrods spokesman

The T&G, which represents warehouse and distribution staff across the store's London operations, says the higher rate is only around half the maximum 15% Harrods pays into the final salary scheme now.

A Harrods spokesman said: "This proposal intends to secure the current entitlements whilst negating the risk of further potential deficits in the future."

The new Defined Contribution Pension Plan will allow staff to make contributions, which, together with contributions from Harrods, will be invested in an individual account in their name with a pension provider chosen by the firm.

These contributions and the investments they return may then be used by employees to buy a pension at retirement.

Schemes closing

Over the last few years in the UK, there has been a growing trend among pension funds to close final salary schemes in the private sector to new members.

But in recent months, some big employers have announced the closure of their final salary schemes to their current members as well.

Employers such as Rentokil, the Co-op group and the Yorkshire and Clydesdale banks are now planning to offer existing staff cheaper, less generous, pensions instead.

Other companies, including the retail group Arcadia, Scottish & Newcastle brewers and the financial services company Provident Financial, have, as an alternative, increased substantially the contributions required from members.

On Thursday BAE Systems said it had agreed a deal with staff that will enable it to keep its final salary scheme open despite its 2.4bn deficit.

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