Background
The Railways Pension Scheme is currently ‘contracted out’ of the State Second Pension. This means that you build up less State Pension, and in return you pay lower National Insurance. The Government is making big changes to the State Pension and, from April 2016, this system of contracting out will no longer be possible.
The result of these changes is that the cost of providing pensions will (if we don’t take action) increase for both members and employers.
An Informal Pensions Working Group was formed of Train Operating Companies (TOC’s) and senior rail trade union representatives to discuss options for a common approach across all TOC’s and propose a common no conflict solution to address the issue. Three meetings of the group were held in 2015 and they considered a range of options. The proposals set out here, and in the letters that we have sent to you, outline Arriva’s proposals, which are based on the solution agreed by this group.
The proposal
- Currently, members can take their pension at age 60 without it being reduced for early payment. Members can retire before age 60, but if they do, then the pension is reduced to reflect that it is being paid early. Under the proposal, this won’t change for any benefits built up before 1 April 2016.
For non-protected members, we are proposing to increase the age at which members can take their pension without reduction from 60 to 62. This does not mean that you are not able to retire before age 62, but if you do, the pension built up from 1 April 2016 would be reduced for early payment. The reductions applied will be on a cost-neutral basis, as set by the Scheme’s Trustees and their advisors.
For protected and indefeasible rights members, this increase from 60 to 62 does not automatically apply, and the entire pension would be payable from age 60 without reduction. These members will, however, have the option to move to a retirement age of 62 – in return, they will pay lower contributions.
- For all members, we are proposing to introduce a cap on pensionable pay increases equal to the increase in RPI (a measure of inflation) plus 0.25% pa.
You will still build up pension benefits based on your actual (uncapped) pensionable pay, but any increase in the salary used to calculate your pension between when it is built up (accrued) and retirement (or leaving if earlier) will be capped.
For the avoidance of doubt, this will have no impact on your actual pay and is only a change in how this is used in the calculation of your pension.
This approach will apply to all pay changes agreed or that are due to be effective on or after 1 April 2016.
What does this mean for you?
We’ve recently sent out letters explaining the proposed changes, and giving some example calculations. Unfortunately, we’re not able to provide personalised illustrations of the proposed changes, but hopefully the examples will give you a good idea of how you might be impacted.
If you still have questions, then please come along to one of our pensions surgeries – see Roadshows for details.
How do I respond to the consultation?
If you would like to formally respond to the consultation, then please get in touch with the contact as set out in the letter we sent to you. If you would like your response to be considered, it must be in writing.
When does the consultation close, and what are the next steps?
The consultations close at the end of March (the date is different for each business). Once the consultation has closed, we will consider any formal responses received and then decide whether to proceed with the proposals. We will write to you to let you know the outcome of the consultation.
