DEFENDING THE RAILWAY PENSION FUND

RMT has written to Alistair Darling, Secretary of State for Transport, to seek a meeting to discuss the Railways Pension Scheme. The letter, signed by other unions, draws attention to the high contribution rates faced by many members following the Scheme’s recent actuarial valuation. Following the 2001 valuation, surpluses which had kept contributions artificially low were coming to an end. Therefore, the Joint Contribution Rate needed to revert to the level required to buy future benefits. However, the valuation also revealed deficits in the majority of sections and contributions needed to rise even higher in order to clear the deficit. Although the member default contribution rate (the rate required to fund future benefits and clear the deficit) for three train operating companies is lower than ten per cent, most are nearer 11 per cent and the highest 18.65 per cent. For Engineering/Infrastructure Sections the situation is even worse with default rates ranging between 11.02 per cent and 21.12 per cent. Alarmingly, several have rates in excess of 14 per cent. These deficits have arisen partly through poor financial returns, but also as a result of the actuary allowing for pensioners to live longer. This is compounded by the actuary also deciding that any deficits must be repaid within nine years rather than over a longer period. Contribution rates for sections where the employer has closed the scheme to new entrants are 3 per cent to 4 per cent higher than for open sections. RISING CONTRIBUTIONS Employees recruited since privatisation may not have realised contributions could continue to rise inexorably. Even those protected members who understood the possibility of fluctuating contributions would not have anticipated becoming responsible for deficits attributable to pensioners and deferred members arising from changed actuarial assumptions. RMT is concerned that members will be unable, or unwilling, to pay ever higher contributions, as there is a finite limit to the increases individuals are able to absorb before deciding that the scheme is unaffordable. However, each individual opting-out means deficits become the responsibility of fewer members, thus increasing contributions further for those who remain. If those who opt-out are predominantly younger members, the average scheme age would rise, requiring additional increases to compensate for the section’s older age profile. These events could result in an uncontrolled spiral of increased costs and reducing membership, a situation that must be avoided at all costs. PENSION CRISIS? Recently, the media has been awash with stories of employers closing their final salary schemes, despite having taken contributions holidays during the late 1980s and the 1990s. All current railway employers have enjoyed surpluses built up during the latter BR years when thousands of railway staff left the industry in preparation for privatisation. Therefore, the union believes that it is totally unfair to expect existing members to pay higher contributions merely because the actuary’s assumptions have changed, or because the employer has taken a business decision to reduce employment costs by closing their section. Even worse is the fact that some members have been placed in closed sections with higher contribution levels following reorganisation of franchises by the government. RMT believes that if the railways had been kept in the public sector contributions would be kept to a realistic and affordable level. The old member contribution rate for the BR Pension Scheme prior to the surplus declared in 1988 was 10.56 per cent. It is unacceptable for rates to exceed that level. RMT believes that the employer should bear responsibility for any additional contributions and recoup any overpayments from future surpluses. The actuary has indicated that proposed contribution rates have 70-75 per cent of producing a surplus. Therefore, it is not unrealistic to expect the employer to take up a greater part of any current shortfall. Companies are also able to offset additional contributions against tax. ONE FUND The union also believes the RPS should revert to being one fund rather than individual sections. Therefore, as a step towards such a unified fund, RMT is proposing one section for the TOCs, one section for infrastructure/engineering companies and one omnibus section covering the remaining employers. The 1994 pensioners section – the section for pensioners at privatisation - would continue as at present. RMT policy of contributions no greater RMTnews :: february 2006 :: www.rmt.org.uk 16 RMT has joined with other unions to campaign in defence of the Railways Pension Scheme DEFENDING THE RAIL Photograph copyright Stefano Cagnoni, reportdigital