Network Rail Pension Scheme – Proposals
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My Ref: MRP 1/8/3 26th January 2015
Circular Num: NP/13 /15
To: The Secretary All Branches & Regional Councils
Network Rail Pension Scheme – Proposals
Following the 2013 triennial actuarial valuation of the Network Rail shared cost section of the Railways Pension Scheme (RPS) the results reveal, allowing for future contributions, a funding level of 100%. The valuation is for the Network Rail RPS 60 and RPS 65 funds.
The actuary has indicated the following Joint Contribution Rates from 1st July 2015 for both funds:
• RPS 60 – Member 9.36% to 9.32% / Employer 14.04% to 13.98%
• *RPS 65 – Member 7.0% to 7.48% / Employer 10.50% to 11.22%
* The increase in the RPS 65 Joint Contribution Rate is a result of the actuary recalculating the cost of providing future service benefits within this fund.
In normal circumstances no further action in respect of contribution or changing benefits would be required as both funds are well funded. However, Network Rail management are proposing to link the 2013 Actuarial Valuation with the ending of Contracting-Out (see below) and present pay negotiations.
The Ending of Contracting-Out
As you may be away the Government are going to introduce from April 2016 a Single-Tier State Pension. From 2016 the Basic State Pension and State Second Pension, formally known as SERPS, will no longer exist for individuals retiring after this date.
In place of the present system individuals will begin to accrue the Single-Tier State Pension. It is anticipated that the Single-Tier State Pension will be set at around £144 per week for a single person. The present Basic State Pension is £113.10.
At present Defined Benefit (Final Salary) pension schemes, such as the Network Rail RPS 60 and RPS 65 funds, Contract-Out of State Second Pension which allows scheme members and employers to receive a reduction in their National Insurance Contributions. For members this rebate is worth on qualifying earnings 1.4% and for employers 3.4%.
However, as a result of this change pension schemes will no longer be able to Contract-Out. This will result in members and employers losing the National Insurance Contribution rebate. Individuals will begin to build up entitlement to the Single-Tier State Pension in exchange for paying extra National Insurance Contributions.
While members will see a reduction in their take home pay resulting from the increase in National Insurance Contributions (1.4%) the Government are proposing to allow employers to recoup their 3.4% rebate by allowing them to change future service benefits or/and increasing contributions in the relevant pension scheme.
Although employers can only recoup up to 3.4% after seeking independent actuarial advice, employers will be allowed to recoup the rebate without the need of trustee consent i.e. agreement.
It needs to be pointed out that initially the Government wanted to allow employers the right to recoup the rebate from Protected Persons. While this has now been overturned after pressure from RMT and other trade unions the Government would not reverse their proposal to allow employers to bypass trustee consent
Network Rail Proposal
The RMT recently received correspondence from Network Rail which sets out the following proposal:
1. Management have indicated that resulting from the ending of Contacting-Out in April 2016 it is anticipated that the payroll costs will go up by £27 million per annum. This is a cost Network Rail state they cannot absorb.
To begin recouping some of the £27 million they are proposing to reduce the present pensionable pay cap of RPI + 0.5% to a flat rate RPI. This proposal will only recoup some of the £27 million and management have indicated they will revisit the remainder at the next valuation in December 2016.
2. Management have stated that the Network Rail Board will not agree to the proposal until there is a “satisfactory conclusion of the current pay negotiations”.
3. As I have already outlined above the 2013 Actuarial Valuation reveal that the Network Rail Pension Scheme is well funded. However, the signing off of the valuation is dependent on the above proposals.
In consideration of the proposals management have made the following report was adopted by the General Grades Committee:
“We note that resulting from the 2013 valuation the Network Rail Pension Scheme is fully funded allowing for future contributions.
“In adding, we further note that management are proposing to introduce a pensionable pay cap of RPI to mitigate some of their estimated £27 million additional employer costs resulting from the ending of contracting-out in 2016.
The RMT’s position is that these are separate issues.
The General Secretary is instructed to write to Network Rail informing them of our position and our view that the 2013 valuation can be concluded and that further discussions on contracting put should be discussed through the agreed machinery.”
Please be advised that I have now written to management expressing this unions views and I will keep you informed of any developments.