Tesco Buyout Offer – the effect on your Tesco pension

Date: 24 June 2010

If you’re a pre-1996 joiner, how will Tesco’s offer to buy out your Saturday Premium and Retained Pay elements affect your Tesco pension?

The effect on your pension depends on which scheme you are in.  To find out, please refer to your last benefit report or your payslip.  Your payslip will say SMARTPB for Pension Builder or SMARTFS for Final Salary.

Final Salary Scheme

The earnings recognised by the scheme for calculating pensions and contributions are known as Pensionable Earnings.

All the three allowances:  

  • Saturday Premium
  • Retained Pay (Nights)
  • Retained Pay (Location)

are classed as Pensionable Earnings.

By accepting the buyout offer your Pensionable Earnings will go down because it they be reduced by your annual allowances.  As a result:

  • You will pay slightly lower contributions
  • Your pension will probably be slightly less as well

More explanation:

When you come to retirement the pension you receive will be based on Final Pensionable Earnings.

Usually Final Pensionable Earnings is the Pensionable Earnings in the 12 months before retirement.

Specifically Final Pensionable Earnings can be whichever is the highest of;

  • Pensionable Earnings in the last 12 months, or
  • The highest single years Pensionable Earnings in the last 5 years, or
  • The average of the best 3 consecutive years Pensionable Earnings in the last 10 years before retirement

If you are about to retire (within 10 years) your pension may or may not be affected.  It will depend on your circumstances.  If it is affected, it will probably be only be slightly less than if the allowances were still part of your pay, because for most people the allowances are a small proportion of their pay.

If you are quite a few years away from retirement (more than 10 years) your pension will be affected as it will be based on your new Pensionable Earnings.  Again, it will only be slightly less than if the allowances were still part of your pay and as the allowances were frozen they would have become an increasingly smaller proportion of your pay over time anyway.

The lump sum buyout will not be treated as Pensionable Earnings so you won’t pay contributions or earn pension on the amount you receive.

If you are worried about how this will affect your pension please contact the Tesco pensions department on 0845 070 1113

Pension Builder Scheme

The lump sum buyout will be treated as pensionable in the week that it is paid.  You will benefit from a higher foundation pension for that year as a result.  In the future your pension will be based on your new salary.

Additional Voluntary Contributions (AVCs)

You can reduce the tax you pay on your buyout lump sum and use it to increase your pension by converting it to AVCs.

This will be taken direct from your gross pay which means you will save tax on this amount.

If you want to do this you must tell your Personnel/Compliance Manager at the time you sign your acceptance form and before the 30th July 2010 deadline.

You will then need to go the Pension Website at http://www.pensionwebsite.co.uk/ (userid Tesco password mypension) and print out an AVC form, complete it and send it to theTesco Pension Trustees Limited, PO Box 4126, Cardiff, CF14 4ZP.