Pensions Act 2014 - Ending of Contracting-Out

My Ref: MRP 1/8/1                                 4th November 2015
                                          Circular Num: NP/218 /15
To: The Secretary All Branches & Regional Councils

Dear Colleagues,

Pensions Act 2014 - Ending of Contracting-Out

I refer to the previous Circular NP/025/15,16th February 2015, as you will recall the RMT and our sister unions have been meeting management at the Railways Pension Scheme (RPS) Informal Pension Working Group to discuss the ending of Contracting-Out.

Presently if you are a member of the RPS you are automatically Contracted-Out of the State Second Pension (S2P). Because you are not building up S2P benefits you and your employer receive a reduction in your National Insurance Contributions. You receive a reduction of 1.4% and your employer 3.4%.

Contracting-Out is ending because the Basic State Pension and the S2P (formally SERPS) will be replaced by the Single Tier State Pension for individuals retiring after April 2016.

As you will recall the Government has put in place legislation which will allow employers to recoup their 3.4% National Insurance Contribution rebate when contracting out ends. This can be by either increasing member contributions or/and changing future service benefits. However, just as concerning is the fact that employers can make these changes without agreement with members or indeed their trade unions.

Management have informed us that the additional payroll cost for all TOCs per annum will be in the region of £47 million and have stated that they are unable to absorb this additional on cost.

Our representatives have been meeting TOC management throughout 2015 to try and come up with a proposal which could be used across all TOCs.

Please find below managements latest proposal which was presented to the trade unions on 2nd October at an Informal Pensions Working Group meeting:

1.    Cost Neutral Early Retirement Factors to age 62 for future service only

Presently members who retire before the RPS Normal Retirement Age (60) receive a reduction on their benefits. Under this proposal non-protected members and those with indefeasible rights would receive a reduction on their benefits if they retired before age 62. Protected members are not affected.

Benefits earned before 1st April 2016 are not affected.

2.    Pensionable Pay Cap of RPI+0.25%

In the event a pay award exceeds RPI+0.25% the amount above this cap would be pensionable for future service only.

As example RPI is 2% and the pay award is 3%. 2.25% would be pensionable for all service and 0.75% would be pensionable for future service only.
This proposal would affect all members of the RPS.

Please note the following RPS sections are affected by this proposal:

Anglia Railways
Arriva Trains Wales    
c2c Rail    
Chiltern Railway Ltd

Chiltern Railway (Maintenance)
East Coast Main Line    
East Midlands    
First Capital Connect

First Great Western
First ScotRail    
Great Eastern Railway    
Island Line
London & South Eastern Railway Limited    London Eastern Railway (West Anglia)    
London Midland    
London Overground

New Cross Country    
Northern (ex North East)    
Northern (ex North West)

South West Trains    
TransPennine Express (Former ATN)    
West Coast Trains Limited

TransPennine Express (Former NWT)            

It is anticipated that across all TOCs the above proposals would generate approximately £46.1 million per annum.

Following the meeting of 2nd October it was proposed by our representatives and our sister unions that a joint trade union executive meeting should be held at the earliest opportunity to discuss managements' proposals.

In consideration the RMT General Grades Committee on 27th October made the following decision:

“Referring to Decision No. G36 of 14th January 2015, we note the meeting held on 2nd October 2015 and report on file.

We therefore instruct the General Secretary to facilitate a joint executive meeting of all trade unions affected by this at the earliest opportunity.”

In accordance with this decision a meeting with our sister unions’ executives is being arranged. I will keep you informed of developments.

Yours sincerely,


Mick Cash
General Secretary