Babcock Rail Section of the Railways Pension Scheme

Dear Colleagues,


Following the 2010 triennial actuarial valuation of the Babcock Rail shared cost section of the Railways Pension Scheme (RPS), the full results reveal a deficit of £34 million with a funding level of 85%.

As a result of this deficit the employer is required by legislation to correct any shortfall over a period of time, known as the recovery period. This recovery period can include increasing member and employer contributions, changing future service pension benefits or both.

Following discussions between management and the RPS Actuary the Employer Covenant Rating was improved as a result of the employer agreeing to put aside a monetary guarantee against the fund of £20 million. Therefore the deficit was reduced from £34 million to £14 million, a funding level of 94%.

Despite this improvement in the shortfall member contribution were set to increase from 11.40% to 19.50% based on a 10 year recovery period. If contributions were to increase by 8.10% this could result in scheme members leaving the fund, which would then pass on the cost of maintaining the fund to those remaining.

Therefore RMT representatives have been meeting with management to try to come up with a solution which maintains benefits but also keeps the fund affordable for members.

Following lengthy and protracted discussions, management made the following proposals:

· Future pensionable pay increases, including promotions, to be capped at RPI to a maximum of 3%

· The cap would result in the fund having a surplus of £1.7 million

· Member contributions to reduce from 11.40% to 9.12% (2.28%).

· Employer Contribution Rate to increase from 17.10% to 17.96% (+0.86%). This increase includes 4.04% deficit reduction contribution agreed after the 2004 valuation

After consultation with RMT representatives at Babcock Rail the above proposals have been accepted by the General Grades Committee. However, the RMT have wrote to management and made it clear that this union reserves the right to negotiate improvements to this agreement on behalf of its members in the future.

Yours sincerely,

R. Crow

General Secretary