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Last Updated: Wednesday, 10 January 2007, 12:15 GMT
WH Smith to close pension scheme
WH Smith store
Analysts said that more firms may now follow WH Smith's lead
WH Smith plans to shut its final-salary pension scheme in a move that would affect about 2,000 workers.

The retailer said that 11% of its staff are members of the scheme - which has been closed to new members since 1995.

WH Smith, which split its High Street retail and distribution businesses last year, said the move would bring all staff pension arrangements into line.

The proposal would not hurt benefits due to those who have left the company or those already drawing from the fund.

The closure will also affect 700 staff at the now separate newspaper and magazine distribution business Smiths News.

'Investment returns'

WH Smith said that the costs of continuing to run a final-salary scheme would be "high and difficult to predict".

The company estimated that it currently had a 41m pension deficit, and would need to pay in a further 50m during the next five years to fund it.

The change would affect staff who work in the shops as well as those in the newspaper distribution business.

An individual's pension accrual would be based on the level of contributions made, investment returns and the cost of buying a pension on retirement
WH Smith

The pension scheme closure at WH Smith has been agreed with the scheme's trustees but under newly introduced legislation the company must now consult with the members that are likely to be affected.

WH Smith was one of the first big employers to close its pension scheme to new joiners, back in 1995.

New recruits have since been offered membership of a cheaper money purchase version.

WH Smith said that following the changes, staff pensions would be based on "the level of contributions made, investment returns and the cost of buying a pension on retirement".

Broadening trend

A few years after closing the final-pension scheme to new members, WH Smith's then chairman told shareholders that the move had meant it would never have to raise its contribution rate back to its higher previous levels.

But as other firms have discovered, closing a scheme to new members does not necessarily cap its costs.

British Airways discovered this last autumn when its pension fund deficit more than doubled to 2.1bn.

WH Smith's plans are part of a small but growing trend for companies to move all their staff into new, cheaper, schemes, and not just new joiners.

Companies such as Rentokil, Debenhams, Harrods and the Co-op retail group made similar decisions last year.

Pension experts at leading actuarial firms have said that they expect more companies to follow suit.

The broadcaster ITN faces a strike by its staff later this month over plans to change its pension schemes.


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