NR Pensions

D ESPITE media attacks, intimidation and legal threats, RMT members at Network Rail have shown immense courage and determination in defending their final salary pensions. Network Rail shut the defined-benefit pension scheme to new staff earlier this year without any consultation with the union and replaced it with an inferior money-purchase scheme. The company had refused point-blank even to discuss re- opening the final-salary scheme in pay negotiations. The company offered an improved 3.5 per cent increase on pay rates, and RPI plus three quarters of one per cent next year, and, significantly, an initial 25 per cent refund on rail season ticket costs. The 35- hour week was also to be brought in by 2006. However, NR refused to budge on pensions. As a result, the union balloted Network rail staff, including those infrastructure workers being brought back in-house from the private sector. Members voted for strike action over the issue, prompting a concerted media campaign attacking final-salary pensions and RMT members’ right to take action to defend them. One industry magazine even accused the union of being “lunatics” for believing it could change the mind of Network Rail directors. Victory The company threatened to use anti-union laws and drag the union through the courts after RMT announced strike dates in defence of the final-salary scheme. However, Network Rail chief executive John Armitt finally saw sense in last-ditch talks and offered to re-open the scheme to new employees after they had completed five years service. RMT general secretary Bob Crow made clear in talks that service would include any agency or sub-contractor service in the rail industry prior to transfer. “Employees with less than five years’ service would meanwhile join a money- purchase scheme, but would be able to transfer into the final-salary scheme upon completion of five years’ service,” he said. The offer also included the improved 3.5 per cent increase on pay, the initial 25 per cent refund on rail season ticket costs and the 35-hour week is to be brought in by 2006, as previously agreed. RMT members had the final say, and voted overwhelmingly to accept the offer. This RMT victory, and others like them such as at Wightlink two years ago, has once again shown that decent occupational pensions can and must be defended against attacks by employers. RMT has made clear that final salary pensions are deferred wages and are not there to be pilfered by company directors at will. Defend your pension One of the reasons why some final-salary schemes are in crisis is that when stock markets were rising employers took the opportunity to take so-called ‘pension holidays’. This meant that employers did not put money into the schemes and used the funds to increase profits, pushing up share prices as well as their own share- option packages. The TUC’s recent PensionsWatch report also revealed that the directors of the UK’s top 100 companies were pumping millions into their own pensions, while attacking staff final-salary pensions and setting contributions to replacement money- purchase schemes at miserably low levels. The scale of RMT’s latest pensions victory was revealed, perversely, by how little coverage it received in the mainstream media, except for a very illuminating article by Larry Elliot in The Guardian, which congratulated the union for fighting to defend pension rights and choosing not to ‘genuflect’ before the employer. RMT news – pension victory Union defends Network Rail pension fund RMT wins a major victory in forcing Network Rail to re-open the final-salary pension scheme to new members Stop the pension panic RMT members recently joined thousands of pensioners, trade unionists, and campaigners who took to the streets of London to demand action over pensions. Assembling in Trafalgar Square, marchers were addressed by trade union leaders and pensioners’ leader Jack Jones. Speakers called for unity between pensioners and workers - the pensioners of tomorrow - in campaigning for decent pension provision, and made the case for compulsion in occupational pension schemes, and a fair indexing system for the state pension. The demand for decent pensions was backed up recently by a survey from actuarial consultants Watson Wyatt which revealed that employers are beginning to reconsider the replacement of final-salary schemes to cut costs. Consultant Stephen Yeo said that employers “value defined schemes, where the pension is a percentage of pay, as a critical tool for recruitment and retention of skilled staff”. RMT is trying to get the message across that decent pension provision is beneficial to employers as well as staff and that the union is determined to defend members’ interests by any means at its disposal. 15 ON THE MARCH: RMT members on the TUC march in defence of decent pension rights Members have raised concerns over the impact on their pension arrangements following the transfer of infrastructure maintenance to Network Rail. The following is a brief explanation of the many questions received at head office in the light of Network Rail’s initial decision to close its final salary scheme and RMT’s successful campaign to keep it open What will happen to my pension? Can I still belong to the Railways Pension Scheme? Following pressure from RMT, Network Rail has agreed to re-open its Section of the Railways Pension Scheme (RPS). In future new entrants will be required to have five years’ service in the rail industry to be eligible to join the scheme. There is no change to the previous situation whereby work- ers transferring over will be permitted entry to the Section if they are already a member of an RPS Section. Individuals contributing to the Balfour Beatty Final-Salary Scheme will also be permitted immediate entry to the RPS. Transferees who contribute to their current employer’s money-purchase scheme and any future new recruits, will be automatically entered into the new Network Rail money- purchase scheme. Employees with more than five years service will be offered RPS membership. Employees with less than five years’ service will be allowed to join the final salary scheme after completing five years’ service. Example: Jarvis closed its final salary scheme to new entrants in 1997. Members joining after the date of closure would have only been able to join the Jarvis money pur- chase scheme. Someone starting employment in 2000 and transferring over would be eligible to join the Network Rail final salary scheme during 2005. In the meantime they will be automatically entered in to Network Rail’s money pur- chase scheme. How much will contributions be to the NR Section of the RPS? Contributions increased to 8 per cent from 1 January 2004. From 1st January 2005 they will rise to 9.5 per cent. How does this compare with contributions to other RPS Sections? All infrastructure maintenance sections have different fund- ing levels. Contributions are as follows: What will happen to the pension I have already earned? This depends on whether you are contributing to the RPS or to a money-purchase scheme. You may transfer the value of your benefits/fund from both types of scheme to your new Network Rail scheme, or leave it where it is. For Money Purchase Scheme members, there is likely to be an annual administration charge if the assets are not trans- ferred. For RPS members, the value of benefits already earned will be assessed by an actuary who will then give an indication as to the amount of additional service this will buy in the NR Section. If past service benefits are not transferred they will be increased each year in future in line with RPI rather than average earnings which are usually higher. Will my transfer include any surplus con- tained in my current Section? Since 1 October, 2003, RPS transfers are no longer required to contain a share of a Section’s surplus. Transfers will depend on whether the members are protected or not, and whether the transferring Section is in surplus or deficit. Therefore members transferring their past service benefits will not necessarily obtain year for year benefits in the Network Rail Section. Also if the transferee is in receipt of a restructuring premium, pre-restructuring service will not be as valuable as post-restructuring service and the amal- gamation of values for these two portions will obviously RMT news – Your pension questions answered NETWORK RAIL 16 YOUR PENSION QUESTIONS ANSWERED Amec 6% from April 2003 (new recruits 7%) Amey 7.5% from 1 Jan 2004 Balfour B. 6.5% from 1 Jan 2004 Centrac 5% until 31 Dec 2004 First Eng. 5% until 30 June 2006 Facilities 5% until 30 Sept 2005 Fastline 5% until 30 Sept 2005 Relayfast 5% until 30 Sept 2005 GTRM 6.5% from 1 Jan 2004 17 RMT news – Your pension questions answered result in fewer years in the NR Section as the extra service will be based on the higher restructured pay. In fact transferees from Sections which have not benefited from previous surplus distributions will be further disadvan- taged by virtue of the fact that their benefits have not been improved, they will be unable to transfer a share of the sur- plus but the benefits of the Section they are transferring to have been enhanced. What will happen to the surplus in my Section of the RPS. It will be retained in the Section unless the employer can be persuaded to transfer it, but to date none has agreed. That seems unfair. Some Sections used the surplus to keep members contributions down. That is right, it is unfair. Members of Sections where sur- plus was used to improve benefits will have larger transfer values. Those employed by companies such as Jarvis, where management refused to distribute surplus, will be disadvantaged as they haven’t seen benefit improvements and now the funds set aside to keep contributions down will be retained within the old employer’s Section. The whole purpose of creating the RPS was to ensure that members’ pensions were not adversely affected on privati- sation. RMT has complained to government on this and a number of other points, but they are not prepared to inter- vene. Will my Brass AVC payments still be matched? Staff transferring into the Network Rail Section will still be able to continue making Brass payments at the level imme- diately prior to transfer, but although their own Brass pay- ments may be increased, employer matching will be capped at the current level. I am over 60. Can I take my pension instead of transferring it to the NR Section? Members aged over 50 may be able to take payment of their past service pension rather than leaving it deferred or transferring into the NR Section. For those over 60 there is no reduction for early payment, but there is a reduction for retirement between ages 50 and 60. However, the reduction for early payment is significantly lower than the majority of final-salary funds and therefore members over 50 years of age should seriously consider this option. Members making this option should contribute to the NR Section. It is rec- ommended that anyone considering this option should not do so without first discussing the matter with a registered financial adviser. Provided the decision to commence pension is taken after joining the Network Rail Section, there should be no impact on NR fund eligibility or, where appropriate, Brass matching payments. Can the union give financial advice? No. RMT is not permitted to give financial advice. However, Pensions Management has agreed arrangements with inde- pendent financial advisers Wentworth Rose for RPS mem- bers aged 50 or over, and considering retiring, to receive a free consultation. Wentworth Rose may be contacted on 0800 526340 I’m only eligible for the new money- purchase scheme, should I join? Yes. It would be foolish to ignore the fact that management will contribute up to 7 per cent of your pay towards a pen- sion. The scheme is not as good as the final-salary scheme, but it is better than nothing. Members should therefore contribute at the 4 per cent level in order to obtain the greatest possible management payment of 7 per cent. RMT believes management savings from introducing the new scheme are nowhere near as high as claimed. If all members pay the maximum, Network Rail’s savings will be reduced. However, members should be aware their contri- butions will be on all earnings and that they will pay higher National Insurance contributions as the scheme is not contracted-out of the second tier of the state pension. Transfer arrangements – Railways Pension Scheme Members have been asking what will happen to the pen- sion benefits they have already earned upon moving to Network Rail employment and how these will be valued if transferred to the Network Rail Section of the RPS. As explained earlier RPS transfer valuations depend on whether the transferring Section is in surplus or deficit, and whether the individual is protected. Where an individual’s employment has been compulsorily transferred the follow- ing would apply: Schemes in deficit at transfer date G Non protected Staff – Transfer Value is ‘share of fund’ (lower than ‘past service reserve’) resulting in a reduced service credit in receiving Section. G Protected Staff – Transfer Value is ‘share of fund’ (lower than ‘past service reserve’) but employer top up required to ensure full ‘past service reserve’ transfer value is payable, thus providing ‘year for year’ basis in receiving Section. Schemes in surplus at transfer date G Non-protected Staff – Transfer Value is ‘past service reserve’, thus providing ‘year for year’ basis in receiving Section. G Protected staff - Transfer Value is ‘past service reserve’, thus providing ‘year for year’ basis in receiving Section. For compulsory transfers of protected members prior to October 1 2003, the Pension Trust specified that a ‘share of fund’ must be transferred where this exceeds the past service reserve. The effect was to transfer an appropriate portion of the surplus from the transferring to the receiving section. It does not enhance the member’s transfer terms. However, this arrangement was only protected for ten years from privatisation. Jarvis Group money purchase scheme Members who contributed to the Jarvis money-purchase scheme received a letter from Forrester Hyde highlighting the fact that the scheme is invested through Standard Life and that individuals transferring to Network Rail may lose any windfall entitlement if Standard Life floats on the stock market. The impression is given that it would be in mem- bers’ interests to continue their pension arrangements with Standard Life. As Standard Life has now decided to seek a Stock Market listing, the issue is now more important. It is a matter of concern that the Forrester Hyde letter makes no mention of the disadvantages of not joining the Network Rail scheme; in particular the fact that not doing so would result in a loss of the new employer’s contribu- tions, as Network Rail would not contribute to the Standard Life scheme. Also no mention is made of the possibility that members could join the Network Rail Scheme while still retaining their current investment with Standard Life, either as a closed ‘paid up’ fund, or as an avenue for making additional voluntary contributions. The letter also fails to state that not all investors would qualify for a demutualisation windfall. Needless to say the Forrester Hyde letter is incomplete in regard to the full range of options open to Jarvis Group money-purchase scheme members. Members of the Jarvis Scheme are therefore urged to take extreme care prior to making decisions in regard to this matter. While RMT is not permitted to give specific financial advice, the potential of losing employer pension contributions and death-in-service cover is not to be dismissed lightly. Members who are unsure whether to join the Network Rail money-purchase scheme should bear in mind they would be losing employer payments of up to 7 per cent. Employer and employee contributions to the Jarvis Scheme are both 5 per cent, whereas member contributions of 4 per cent to the Network Rail scheme would attract employer payments of 7 per cent. Thus by joining the Network Rail Money Purchase scheme members would be obtaining higher employer contributions than those available during Jarvis employment and their own payments would be lower than to the Jarvis Scheme. Declining to join the Network Rail Money Purchase scheme effectively saves management up to 7 per cent of the pay. Likewise declining to join the RPS final salary Section saves management pension contributions of 14.25 per cent of scheme pay. Financial crisis at Jarvis Arising from Jarvis’s severe financial problems and media speculation suggesting the situation threatens the company’s very survival members have raised concerns that bankruptcy represents a threat to their pension entitlement. While RMT has written to Pensions Management seeking full clarification of the situation, members will be comforted by the fact that RPS funds are held totally separate from the employers’ assets and that all three Jarvis Sections – Fastline, Relayfast and Facilities – had a surplus at the last valuation. Therefore while funding levels will have declined since that time, assets levels should still be adequate to cover past service benefits. Members will be kept advised of developments. RMT news – Your pension questions answered 18