The Government's pension reforms - Work and Pensions Committee Contents

Written evidence submitted by Wm Morrison Supermarkets plc


—  Morrisons is the UK's fourth largest supermarket with 440 stores across the UK, supported by a workforce of more than 130,000. Every week in excess of 11 million customers pass through our doors.

—  Morrisons runs a stakeholder pension scheme and two defined benefit schemes (the defined benefit schemes are closed to new entrants). There are around 11,500 active members, 12,000 pensioner members and over 26,000 deferred members in the defined benefit schemes.

—  All 130,000 employees are covered for death in service benefits of at least one times annual earnings.


1.1  Morrisons welcomes the opportunity, as one of the UK's largest employers, to comment on the Government's pension reforms.

1.2  This response summarises some of the concerns and issues brought about by the change to CPI and plans for auto-enrolment.


2.1  Pensions in payment for the two Morrisons defined benefit schemes are increased in line with RPI up to 5% (2.5% for post April 2006 benefits). Revaluation of deferred pensions is in line with statutory provisions.

2.2  Whilst the replacement of RPI by CPI is of benefit to Morrisons in that it reduces the cost of pension provision, what is of concern is the arbitrary nature of the change and the impact on the membership of Morrisons defined benefit schemes.

2.3  The change to CPI is likely to be an issue for pension scheme members who joined the scheme on the assumption that their accrued pension benefits would be protected against the impact of inflation as measured by the RPI. Morrisons and the schemes' trustees are concerned that they may therefore be challenged on this point.


3.1  As one of the UK's largest employers, Morrisons will be among the first companies to have to auto-enrol its workforce in 2012.

3.2  Morrisons welcomes most of the changes introduced as a result of the Government's review, including the increase in the earnings threshold for automatic enrolment and the threshold above which pension contributions become payable, along with the optional "waiting period" of up to three months before a worker needs to be automatically enrolled. However, there are a number of issues which cause us concern.

3.3  Morrisons' workforce includes a significant number of part-time employees who may vary their hours each week, which leads to significant fluctuations in pay over each four-weekly pay period. This makes it difficult to assess whether such employees should be auto-enrolled.

3.4  Employees can opt out at any time but not before they have been made a member of the scheme and opt-out forms must only be made available from the scheme. The fact that employees cannot opt out in the three month waiting period but must be opted in by the Company before they can be opted out by the Scheme appears to be over prescriptive and time consuming and has the capacity to harm employee relations.

3.5  An opt-out within one month leads to membership being annulled so the employer/scheme has to refund any contributions. Contributions paid during the opt-out period do not have to be passed over to the scheme until the last day of the second month after auto-enrolment. With a large number of new potential members each month, Morrisons believes that the proposed system of retaining some contributions each month in case the new member opts out is not helpful and it would be simpler to give employees the chance of opting out before being auto-enrolled.

3.6  Employee turnover in the retail sector is relatively high compared with other sectors and the ability to take a refund of contributions is a considerable factor to consider when joining a pension scheme. Morrisons' workforce includes a large number of part-time, young (aged under 22), and foreign workers. These colleagues are more likely to opt out of the pension scheme, especially if the rules concerning refunds of contributions to short-term employees are changed.

3.7  Morrisons expects to have to auto-enrol around 60,000 employees in October 2012. It is expected that the majority of these employees may opt out immediately or within a month of being auto-enrolled, depending on scheme design. Morrisons has some concerns over the ability for auto-enrolment to be achieved with minimum disruption at a time when the company is approaching its peak trading period.

3.8  We believe more clarity is required over how auto-enrolment works when employees are on maternity/paternity leave and how maternity/paternity pay is treated.

3.9  The treatment of new employees covered by TUPE provisions is also unclear. This is of concern to Morrisons as we are an expanding business with ongoing acquisitions.

3.10  Once every three years, employers must re-enrol employees who have previously opted out. Morrisons believes that employees who have previously opted out should be given the opportunity to confirm their opt-out at the end of the three year period before they are actually re-enrolled.

Refund of Contributions

3.11  A review of rules which currently allow members of trust-based schemes to take a refund of their contributions if leaving within two years is currently being undertaken.

3.12  Refunds of contributions are part of scheme design and are made in order to avoid the build up of a large number of trivial fund values. Morrisons is concerned that the delay in determining whether such refunds will continue to be allowed is not helpful at this stage when we are trying to design a scheme which will determine how future pension benefits for our employees will be provided.

3.13  Building up small pension pots in different pension arrangements will not encourage scheme membership as short-term employees will opt out if no refund is available on termination. Morrisons believes that the option for short service members to take a refund on termination of service should remain in place.



4.1  The charge of 1.8% on each new contribution into the fund is a significant amount, especially when taking into account that investments will be held in low risk or "cautious" default fund, such funds generating low returns when compared with higher risk funds.

4.2  As the contribution charge is expected to be in place for a fixed term (albeit 20 years) those members who join earliest will in fact be subsidising members who join in future (assuming the contribution charge is in fact withdrawn at some point).

Death benefits

4.3 It has been proposed that refunds following the death of the member will be paid directly to nominated beneficiaries without any discretionary decisions by trustees.

4.4  Based on Morrisons, with all 130,000 employees being covered for death in service benefits, it is highly unlikely that all members will provide up to date information on the nominated beneficiaries.

4.5  The decision not to take discretionary decisions will lead to refunds of contributions being made to the wrong people and, in many cases where there is no nominated beneficiary (or no estate), will lead to no refunds at all being paid. Provisions will therefore need to be in place to ensure that death benefits are in fact paid in accordance with the wishes of the members, and clarity is needed on what happens to payment of refunds that NEST cannot apply.

Other points

4.6  The annual contribution cap and the ban on transfers into and out of NEST are not due to be reviewed until 2017 and will therefore reduce the feasibility of NEST as a pension provider choice for Morrisons.

4.7  The fact that transfers into or out of NEST will not be possible for a number of years is a discouragement to membership of this arrangement and Morrisons feels that it should be possible for the transfer issue to be resolved before 2017.

March 2011

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Prepared 26 April 2011