Colas Rail Section of the Railways Pension Scheme – 2013 Actuarial Valuation

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My Ref: MRP 1/8/109                                   25th March 2015
 
                                            Circular Num: NP/50/15
To: The Secretary All Branches & Regional Councils

Dear Colleagues,

COLAS RAIL SECTION OF THE RAILWAYS PENSION SCHEME – 2013 ACTUARIAL VALUATION

Following the 2013 triennial actuarial valuation of the Colas Rail shared cost section of the Railways Pension Scheme (RPS) the draft results reveal, allowing for future contributions, a deficit of £15.9 million with a funding level of 90.6%.

The scheme actuary has indicated that if no corrective action is carried out the Joint Contribution Rate (JCR) will increase from 1st July 2015 at the following rates, based on a 10 year recovery plan:

•    Member 15.68% to 35.8% (+20.92%) / Employer 23.52% to 54.9% (+31.38%)

Clearly these increases in the contribution rate would be totally unaffordable for members and would result in the vast majority of them leaving the section.

The RMT and our sister unions have been meeting with management to discuss possible solutions to deal with the deficit and the excessive increases in contributions. A number of proposals were made by the trade union side but I regret to inform you that following the company having these modelled by their pension actuary none of them brought the JCR down to an affordable level.

Management also outlined some alternative proposals which they also had modelled by their actuary. These proposals included increasing the retirement age to 65, changing the accrual rate from 60ths to 80ths or both. Management demonstrated that using any of these scenarios the member contribution rate would still not come down to below 32.2%.

The deficit within the Colas Rail section comes as no surprise to the RMT, in 2010 the shortfall was £12.1 million and despite a number of proposals finally being agreed which helped reduce the JCR to an affordable level this did not take away one of the ongoing funding problems this section has. This problem being the fact that management has closed the section to new entrants.

In 2010 there were 249 contributing members and 722 pensioners in the Colas Rail. By 2013 contributing members had reduced to 194, with pensioners increasing to 768. If you have a reducing population of contributing members and an increasing number of pensioners then there are less people to spread the cost of paying pension and to pay off any past service deficit. This problem is magnified as the RPS is a shared cost arrangement and therefore members have to share the scheme funding with the employer.

Our representatives have again requested that Colas Rail make additional contributions into the fund and reopen the scheme to new entrants to assist with the shortfall. Without such action members will have no choice but to leave the scheme as a result of the high contribution rates. This request was also made in 2010 and again management have point blankly refused.

Management have stated that if members are happy to pay their share of the JCR (35.8%) then they are happy to pay their share (54.9%). Alternatively management have proposed to offer members of the Colas Rail section of the RPS membership of an inferior defined contribution arrangement with an employer contribution rate of 7% if they wish to leave the scheme.

While our representatives are unhappy with this outcome it was agreed by the trade union side to write jointly to management in respect of DC proposals and seek improvements in the event that members have no alternative to but to leave the Colas Rail section

The General Grades Committee in consideration of this proposal on 17th March 2015 adopted the following report:

“We note that the 2013 valuation results of the Colas Rail Pension Scheme reveal a £15.9 million deficit with a funding level of 90.6%. The scheme actuary has indicated that if no action is taken the Joint Contribution Rate (JCR) will increase from 39.2% to 90.7% which will result in member contributions increasing from 15.68% to 35.8%.

We further note the report on file from the RMT Regional Organiser who outlines the efforts which have been made by the trade union side to bring the JCR down to an affordable level.  

It is noted that our representatives have requested that Colas Rail make additional contributions into the section and that it is re-opened to new entrants, and that this has been refused my management.

We note that management have proposed to offer a defined contribution pension scheme for those members who can’t afford to pay their share of the JCR, 35.8%.

We are aware that the Colas Rail Pension Scheme is not the only section within the RPS which is facing similar funding problems. However, it is the RMT’s believe that this is a consequence of the privatisation of the railways and ultimately the blame rests with Government policy.

We instruct the General Secretary to write to Colas Rail informing them that we are unable to accept the valuation proposals and that we demand that the employer makes additional payments into the scheme and that the fund is re-opened to new entrants.

Further Colas Rail should fund Independent Financial Advice for members in the event that our demands are refused so that members can take an informed decision whether to stay or leave this section of the RPS.

Branches and Regional Councils to be informed.”

I will keep you informed of any developments.

Yours sincerely,

 

Mick Cash
General Secretary