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Boots Axes Final Salary Pension for 15,000 Workers

Boots became the latest major British company to say that it
will close its final salary pension scheme.
It has begun a three-month consultation with the 15,000 workers
in the scheme which will almost certainly end up with them being
moved to a defined contribution scheme. These are generally seen as
less generous for workers than final salary schemes but also less
risky for the companies behind them.
Alliance Boots said that only one in five of its 75,000 British
workers was in the final salary scheme, 5,500 are in the existing
defined contribution scheme and the vast majority - almost 55,000 -
are in no scheme at all.
The company claimed it was not making the move to save money. It
said that if everyone joined the defined contribution scheme the
cost to the firm could actually be greater. Instead, it said, the
new scheme would be more "sustainable" than the final salary
scheme.
Chairman Stefano Pessina said: "Having very carefully considered
all options, the proposed pensions changes for UK employees is the
right step to take.
"This will help protect the business from the effect of pension
funding volatility and ensure the long-term sustainability of the
group's UK retirement savings schemes. We have seen many large
businesses, like ours, make this move and our aim is to encourage
greater participation from all UK employees in a competitive and
fairer retirement savings scheme."
Boots pension scheme is famous because under its then corporate
finance director john Ralfe in 2000 it was not only one of the
first to close to new entrants but also the very first to switch
all its investments out of shares and into bonds. At the last
balance sheet date (last March) it had a surplus of £188
million.
Industry experts said that without Ralfe's farsighted switch the
scheme could have had one of the largest deficits in the UK.
The pension fund was also key in the £11 billion takeover of
Alliance Boots by US private equity giant Kohlberg Kravis Roberts
three years ago. The firm backed Pessina's management buy-out of
Alliance Boots taking it off the stock market. But the pension fund
trustees, led by their chairman John Watson, refused to give their
backing to the bid until KKR came up with an extra £418 million
over 10 years for the fund and a guarantee of a further
£600 million safety net.
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