Virgin West Coast section of the railways pension scheme – ending of contracting-out & salary sacrifice (smart pensions) proposals

My Ref: MRP 1/8/83                                                                                                                                                                                                                                      8th July 2016

                                                                                                                                                                                                                                                                        Circular Num: NP/183/16
To: The Secretary All Branches & Regional Councils

Dear Colleagues,


As you will be aware resulting from Government legislation defined benefit pension schemes which contacted out of the State Second Pension are no longer able to do so. Since 6th April 2016 both pension scheme members and employers have seen an increase to their National Insurance Contributions (NIC) of 1.4% and 3.4% respectively as the rebate associated to contracting-out was abolished.

While members have had no choice but to accept the increase in NICs, the Government has put in place legislation which will allows 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 met 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 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 West 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 £3.2m per annum. The above proposals are estimated to recoup £2.8m per annum. Please note due to the late implementation these proposals will only recoup £2.0m in 2016/17

Resulting from these proposals contributions will reduce for members and the employer.

For further information on the ending of contacting and the IPWG framework proposals please go to or refer to Circular No. NP/256/15 of 18th December 2015

Further management have informed the RMT that they intend to introduce Smart Pensions which is a Salary Sacrifice arrangement. Please note that despite its name Smart Pensions is not a pension scheme but a vehicle where members and the employer can make National Insurance Contribution savings. Please see link below:

This item was placed before the National Executive Committee on 7th July 2016 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 contracting-out proposals on file.

In relation to the Smart Pensions (Salary Sacrifice) proposal, we instruct the General Secretary to inform management that employees should not be automatically opted-in to this arrangement. Pension scheme members should have the option to either opt-in or not to participate.”

I have now informed management of the National Executives Committee’s decision and will keep you informed of developments.

Yours sincerely,


Mick Cash
General Secretary