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October 13, 2005
Some new recruits have not continued contributing to the Network Rail Defined Contribution Pension Scheme (NRDCPS) and also that the majority of members who do contribute, are not paying at a high enough rate to provide for an adequate pension.
You will be aware that the new money purchase scheme commenced in April 2004. New joiners who are ineligible for the Railways Pension scheme are automatically enrolled on the basis that an enrolment form, which confirms the contribution rate and investment choice, will be completed within three months. Members are offered the opportunity of paying between 0% and 4% basic pay. The company matches employee contributions, adds an additional 3% and provides life assurance cover at four times salary, at no extra cost. In addition members have an opportunity to pay voluntary contributions up to a maximum of 15% of pay.
However, there is concern that very few employees are taking full advantage of the opportunity provided by the scheme to maximise retirement income. In fact:
While there is no doubt the money purchase scheme is not as attractive as the RPS, members should be encouraged to join and pay a minimum contribution of 4% in order to obtain the maximum employer contribution. Member contributions at 4% attract employer payments of 7%; giving a total of 11%, to build up a reasonable pension pot which may then be transferred to the RPS after five years service.
Obviously RMT will continue to argue for the RPS to be open to all employees regardless of service, but in the meantime the NRDCPS offers the prospect of providing for a pension. Members should therefore not ignore the value of the employer's contributions, as those who pay nothing are effectively losing the opportunity of getting up to 3% extra from their employer. Put another way; Network Rail's employment costs are reduced every day of every week for every member who doesn't contribute the maximum 4%. I am sure members would not knowingly subsidise their employer in this way! Everyone hopes to be able to retire on a reasonable pension and the earlier contributions start the greater likelihood there is of achieving that goal.
ILL HEALTH INSURANCE
When the NRDCPS was established, one of the issues raised by RMT was the lack of ill-health cover for employees unable to continue in employment. I am please to report that Network Rail has now agreed to provide ill health insurance cover which would pay a lump sum of twice basic pay. Full details of the arrangement are currently being determined and will be provided as soon as possible. Obviously this is not as attractive as the RPS's ill health benefit; however, it provides an additional incentive for members with less than five years service to join the Scheme.
Circular No. NP/002/05