Tesco, the supermarket chain, has taken 59,000 employees out of its current pension plan and put them into a scheme which will be based on their average earnings.

The move is in stark contrast to the recent trend, which has seen many companies closing their 'defined benefit' schemes, and replacing them with less generous plans.

Although the new scheme is not a traditional final salary plan, income in retirement will still be based on an employee's earnings - and should be better for employees.

The company used the announcement of its annual results on Wednesday to clarify its pensions policy.

Employer's responsibility

Defined benefit schemes are much more risky and a heavier burden on employers than defined contribution plans.

With a defined contribution plan, the employee shoulders the risks involved - and is not guaranteed a set return.

Over the past 18 months, an increasing number of companies have closed down their defined benefit schemes.

Instead, staff have been enrolled in so-called money purchase schemes, which usually generate lower returns.

One of the main reasons given by companies for the change is a new accountancy standard - FRS17. The new rule forces firms to show pension fund deficits on their balance sheet - and therefore can push down the company's share price.

Career earnings

Tesco's employees who have been switched over to the defined benefits scheme will have their pensions based on their career's average earnings.

Most defined benefit plans are based on a worker's final salary, but Tesco said that using average earnings would be less risky in the long term.

By basing payments on average earnings rather than final salaries, it said it could assess liabilities more easily.

The company said in a statement: "In this way, we believe we offer an industry leading benefit to our employees, whilst allowing us to manage the group's exposure."

Terry Leahy, chief executive of Tesco, said the company could afford to keep its scheme going, and saw it as a good way of attracting staff.