My Ref: MRP 1/8/108 21st April 2015
Circular Num: NP/071/15
To: The Secretary All Branches & Regional Councils
Babcock Rail Section of the Railways Pension Scheme – 2013 Actuarial Valuation
Following the 2013 triennial actuarial valuation of the Babcock Rail shared cost section of the Railways Pension Scheme the draft results reveal a deficit of £15.5 million with a funding level of 93.2%.
The scheme actuary has indicated that if no corrective action is taken the default Joint Contribution Rate (JCR) will increase from 1st July 2015 at the following rates, based on a 10 year recovery plan:
• Member 9.12% to 23.0% (+13.88%) / Employer 17.96% to 38.78% (+20.82%)
While possible options have been considered to help reduce the deficit and bring contributions to an affordable level I regret to advice you that none of these have had the effect of bringing the JCR down to a level which is acceptable.
Management believe that the scheme is unsustainable in the long term and initially proposed to introduce a pensionable pay cap of 0.0%. This would mean that members’ pensionable pay would not increase unless the cap was changed. Management also proposed to introduce a defined contribution scheme to run alongside the RPS.
Our representatives have rejected managements’ proposals and believe that the employer should be sharing the responsibility of keeping the scheme affordable with members. The RMT has therefore proposed that Babcock Rail make additional contributions into the fund and re-open the section to new entrants. Both proposals have been rejected by management as they believe that the RPS is shared cost (60% / 40%) and therefore they are not obliged to pay anymore than they have too. In respect of re-opening the scheme to new entrants management believe that this would increase their risk.
After a number of meetings management have made the following proposal:
• A cap on pensionable pay increases of CPI to a maximum of 0.5%
• The employer to make additional contributions into a Defined Contribution scheme, equal to 15% of the amount by which actual section pay exceeds the capped section pay
• 15 year recovery period
• Introduction of Salary Sacrifice arrangement and the employer to use their total savings to reduce the JCR
• Member contribution rate to increase from 9.12% to 12.23% (includes member Salary Sacrifice savings of 1.04%)
The General Grades Committee in consideration of this proposal noted and adopted the following report on 16th April 2015:
“We note that the 2013 valuation results of the Babcock Rail Pension Scheme reveal a deficit of £15.5 million with a funding level of 93.2%. The scheme actuary has indicated that if no action is taken member contributions will increase from 9.12% to 23.0%.
We further note that our representatives have requested that the employer re-opens the section to new entrants and that Babcock Rail make extra contributions into the scheme to make it affordable for members. Both of these requests have been refused although it has been agreed that the employers Salary Sacrifice savings will be used to offset some of the Joint Contribution Rate. This will still result in members’ contributions increasing from 9.12% to 13.27%.
It is noted that management are proposing to introduce a pensionable pay cap of CPI to a maximum of 0.05% and a Defined Contribution scheme to run alongside the RPS.
The General Secretary is instructed to arrange a meeting with Babcock Rail management to discuss the full extent of their proposals and to report back to the General Grades Committee.
Branches and Regional Councils to be informed.”
I will keep you informed of any developments.
My Ref: MRP 1/8/108 21st April 2015