The Governments State Pension Reforms & Impact on Railway/LUL Pension Provision

My Ref: MRP 35/1                                 11th November 2013
                                          Circular Num: NP/314 /13

To: The Secretary All Branches & Regional Councils

Dear Colleagues,


I refer to my previous Circular, NP/060/13, 7th March 2013, as you will recall as part of the State Pension reforms the Government are proposing to cease Contracting Out of the State Second Pension and therefore introducing a Single Tier State Pension from 2016. These reforms could not only have serious consequences for funding Defined Benefit (DB) pension scheme but also members’ future benefits.

To recap:

•    Many DB pension schemes are Contracted Out and as a result fund members and employers receive a National Insurance Contribution (NIC) rebate. As from 2016 this rebate will be abolished. The rebate is worth 1.4% to members and 3.4% to employers.

•    The employer rebate is used to help fund DB arrangements and as a result of the increase in NIC the Government are proposing to allow employers to recoup this money by allowing them the right to change future benefits or/and increase member contributions to a maximum of 3.4% without the need of trustee consent.

•    Not only are the Government proposing to bypass trustee consent but they are also proposing to allow employers the right to override Protected Persons Legislation and therefore giving them the right to change these employee’s future pension benefits.

You are a Protected person or a persons with an indefeasible right “if at midnight on 4ht November 1993 you were in the BR Pension Scheme and were employed by the British Railways Board or were not at the time working for the Board but have since exercised a statutory or contractual right to return to employment with the Board or a successor.” The Railways Act 1993

•    As previously reported this will affect RMT members, protected or non-protected contributing to the Railways Pension Scheme (RPS), Transport for London Pension Fund (TfLPF) and the many other DB pension schemes which are contracted out.

•    There are also other concerns in regards to pension schemes which have a Basic State Pension offset and are shared cost.

•    If the Single Tier State Pension is increased from £110 to £144, on today’s money, from 2016 there is a concern that a schemes offset would increase and as a result reduce future benefits.

•    Unlike the majority of DB schemes the RPS is shared cost opposed to balance of cost. Contribution are therefore shared, 60% employer, 40% members. If the Government allows employers to recoup their 3.4% NIC rebate this could mean that they would need to make benefit changes in excess of this amount to reach 3.4%. It would appear unlikely that contribution increases would be an option as this would break the shared cost arrangement which is popular amongst RPS employers.

As I reported previously the RMT were preparing to respond to the Department for Works and Pensions (DWP) consultation paper in regards to the Protected Persons Override. The RMT have now responded and have made our opposition known to this particular element of the Governments proposals.

I would also like to inform you that I and members of our Parliamentary Group have also met with the Governments Pension Minister raising our concerns.

In relation to the Protected Persons Override the Pension Minister stated that no decision had been made and that consideration was being given to consultation responses. He also stated that the Government were not considering changing their proposal to change the right of employers to bypass trustee consent when it came to employers recouping the 3.4% NIC rebate. However, the Government would consider representations made.

The RMT also brought to his attention the RPS offset and almost unique shared cost arrangement.

While the Pension Minister believed that the measurement used to calculate the offset would not be changed he stated that this would be a matter for the Rail Industry.

The Minister agreed that the RMT concerns could be followed up at a meeting with senior Civil Servants at the DWP.

A meeting was subsequently arranged at the DWP where RMT representatives again raised concerns as mentioned above. It was agreed that the DWP would take away the RMT’s concerns and have a look at these in greater detail.

While we still wait on a response from the DWP, the RMT has continued to pursue these issues through our Parliamentary Group by proposing two amendments to the Pension Bill 2013. The two amendments were tabled by our group, one to the Protected Persons Override and the other in relation to Trustee Consent, remove these from Pension Bill.

Both amendments were debated in Parliament on 29th October 2013, although neither was voted on due to parliamentary time. However, the Labour Party front bench also submitted an amendment calling for retention of Protected Person Legislation in relation to protected persons which was voted on but was defeated with the Government maintain that they were still considering this issue.

Despite this setback the RMT will continue to put pressure on the Government through our Parliamentary Group and will now move these amendments through the House of Lords. I would also advice you that the Labour Party intend to move their amendment through the House of Lords.

I will keep you informed of developments.

Yours sincerely,
R. Crow
General Secretary