My Ref: MRP 1/8/24
22nd January 2016
Circular Num: NP/040/16
To: The Secretary All Branches & Regional Councils
EAST COAST MAINLINE SECTION OF THE RAILWAYS PENSION SCHEME– ENDING OF CONTRACTING-OUT PROPOSAL
As you will recall from previous Circulars as a result of Government legislation defined benefit pension schemes which currently contact out of the State Second Pension will no longer be able to do so from April 2016. Both members and employers will see an increase to their National Insurance Contributions (NIC) of 1.4% and 3.4% respectively as the rebate associated to contracting-out is abolished.
While members will have no choice but to accept the increase in NICs, the Government has put in place legislation which will allow employers to recoup their additional payroll cost by either changing future service benefits or/and increasing contributions. However, the employer still has to consult with members.
Please note the employer has to seek actuarial advice and cannot recoup more than the rebate.
The RMT and our sister unions have been meeting with TOC employers through the Informal Pensions Working Group (IPWG) to find a set of generic proposals which could be used across all TOCs. The final proposals (framework) which were agreed by the RMT General Grades Committee on 1st December 2015 are:
- Cost Neutral Early Retirement Factors (CNERF) to age 62 for non-protected members for future service only
- Pensionable pay increases capped at RPI + 0.25% with any increase above the cap being pensionable for future service only. This change affects protected, indefeasible right and non- protected members
In accordance with these proposals Virgin East Coast management informed our representatives that they intend to recoup their NICs rebate and wish to use the IPWG framework proposals.
As a result of the ending of contacting-out, management have indicated that their additional payroll costs are estimated to be £2.56m per annum. The above proposals are estimated to recoup £2.39m per annum.
As a result of the above proposals contributions will reduce for members and the employer.
Please note that this East Coast section already has CNERF to age 64 which was agreed as part of the 2010 Actuarial Valuation process. In 2012 those non-protected members had their Normal Retirement Age (NRA) increased for future service from age 60 to 64. However, these pension scheme members had the one off opportunity to maintain the NRA of 60 in exchange for paying higher contributions i.e. the same as protected members.
Those non-protected members who elected to keep the NRA of 60 will see their NRA increase to age 62 for future service as a result of these proposals. New employees will continue to have a NRA of 64.
This item was placed before the National Executive Committee on 21st January where the following report was adopted and noted:
“That we note the employers contracting-out proposals are in accordance with the Informal Pension Working Group proposals which have already been accepted by this union.
We also note the reduction in the Joint Contribution Rate which is a result of these proposals.
Therefore we note the correspondence on file.”
For further information on the ending of contacting and the IPWG framework proposals please go to http://bit.ly/1Vd7ytS or refer to Circular No. NP/256/15 of 18th December 2015.