Written evidence submitted by Wm Morrison
Supermarkets plc |
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.
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.
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
1.2 This response summarises some of the concerns
and issues brought about by the change to CPI and plans for auto-enrolment.
2. THE IMPACT
INDEX (CPI) TO
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. PLANS FOR
3.1 As one of the UK's largest employers, Morrisons
will be among the first companies to have to auto-enrol its workforce
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).
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
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.
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