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Circular No. NP 031/06
I am writing to bring you up to date with developments in regard to the TfL Pension Fund.
The Finance Act introduces several changes to pension provision under the misnomer 'pension simplification.' Unfortunately there is nothing simple about it and the revised regulations are less than straightforward. Some of the changes are mandatory; others are non-mandatory but provide greater flexibility. The current restrictions to the maximum benefits which may be taken from an occupational pension scheme are being replaced with a lifetime limit of £1.5m. The current maximum pension is 2/3rds final salary and an annual contribution of 15% of income. These are being replaced with an individual pension pot for everyone of £1.5m and annual maximum contributions of £215,000 per year. However, the TfL Fund will retain the current maximum 2/3rds pension and contributions no greater than 15%. This still allows individuals to contribute to the Fund AVC at the same rates as at present. Anyone wishing to make higher individual payments to accrue greater benefits will need to do so via a personal pension arrangement.
Other changes are as follows:
Early Retirement- Currently it is possible to draw an occupational pension from age 50, but this will not be possible after April 2010. Existing members are protected and will continue to be able to retire at age fifty. New recruits from
Children's Pensions - Full Time Education
Currently child dependants pensions are payable until 25 years of age if the recipient is in full time education. After 5th April, such pensions can only be paid up to age twenty-three. However, the Trustees are examining the possibility of paying a lump sum for the final two years so there would be no adverse impact on current rules.
Tax Free Lump Sum
Currently members may commute part of their pension on the basis of 3/80ths per year. The maximum permissible lump sum will be increased to 25% of pension entitlement, but this will, of course, result in a lower pension as more of the pension is given up to provide for a greater lump sum.
Taking AVCs as Cash
Only individuals who commenced AVC arrangements prior to April 1987 are permitted to take the full value as a cash lump sum. After
Concurrent membership of TfLPF and other pension funds
The Act permits membership of other pension funds at the same time as being in the employer's pension fund. However, this is only permissible with employer consent and TfL has not indicated its position.
Working and Drawing a Pension
The Act provides for employees to be able to draw their pension and continue working. However, this is only permissible with employer consent and currently the participating employers are considering their attitude on this issue.
Ill health Pensions
During the latter stages of last year, RMT became aware that the number ill health pensions being suspended had increased significantly. There was obviously a crack-down on ill health pensions by the Fund Office, presumably under instruction from senior management, in an attempt to reduce costs and to dilute the very valuable protection offered to members of the TfL Fund in the event of them being unable to do their job owing to ill health.
Following RMTs objections it has been agreed there will be no further suspensions of ill-health pensions until the Trustees reach agreement on the way forward. However, management is endeavouring to muddy the waters on this issue by claiming that the Fund's Rules do not coincide with the Guidelines used by the Fund Office. They are accordingly seeking to amend the Guidelines. RMT view is quite clear, the guidelines are those drawn up in recognition of the agreement reached between the Unions and management to protect individuals who are unable to do their own job and if the Rules do not reflect the Guidelines, the Rules should be amended. Any worsening of the current practice is unacceptable.
This issue is further complicated by Finance Act 2004 changes. Guidance notes issued by HM Customs and Revenue covering ill-health pensions impact on our current agreement. At the present time if medical evidence indicates a member is unfit to do his/her own job they would be granted an ill health pension. The pension may be suspended if the individual recovers to 100% fitness or revised to reflect an income. Where an income is earned, if the income plus TfL pension is greater than that of their previous job, the pension is reduced so that the individual's overall earnings are not greater. However, the new HM Customs and Revenue guidelines do not permit ill health pensions to be varied, they only permit the granting or suspending of such pensions. RMT is concerned that this undermines one of our long standing conditions of service. We have therefore proposed that once an ill-health pension has been granted it should not be withdrawn, and are waiting a response from management. In the meantime, following our objections, the revised ill health arrangements are not being introduced
A new Law came into effect on 5th December, 2005 requiring pension schemes to treat same sex partners who have formally registered their relationship in exactly the same way as married couples. The TfLPF had previously provided Dependants' pensions to surviving same sex partners subject to evidence of actual dependency and therefore this new Law merely enhances provisions already offered by the Fund.
Independent Chairman of the Fund
Management is proposing an independent Chair for the TfLPF. There are currently eighteen Trustees, nine nominated by management and nine by the Unions and employee/pensioners. An employer nominee is Chairman of the Fund, but TfL believes that legislative changes introduced from April this year, change the employer/trustee relationship in regard to the setting the actuarial valuation assumptions, and causes a conflict of interest. They believe an independent Chair would solve this problem. RMT does not consider an independent Chair is necessary. We are certainly not prepared to accept a change in the balance of power as this would affect governance of the fund. The Trustees have indicated that if such an individual is appointed it should be from one of the employer's nine nominees, thus retaining the current balance. No definitive decision has been taken and the issue is still receiving consideration by the TfL.
Preparations are currently being made for the next valuation of the Fund. The valuation, as at 31st March 2006, will assess whether or not there are sufficient assets to pay for pensions already promised to existing pensioners, deferred pensioners and active members, and also to set employer contribution rates necessary to fund future benefits after the valuation date. The last valuation revealed a £450m deficit, £421m of which related to the TfL Section, and although TfL has been paying higher contributions it is also likely there will be a shortfall this time. In view of decisions by many employers to close their schemes and attempts by Government to amend benefits of Public Sector Schemes RMT policy in regard to the TfL Pension Fund is:
A meeting of all LT Secretaries and Chairpersons has been called for Friday, 31st March in order to provide a wider briefing on all matters affecting the Fund.
However, I would assure members that RMT will seek to protect the Fund and its benefits to ensure that those benefits may be enjoyed by future LT employees. I shall keep you advised of developments.