Transcript Serving Quality - Communication Workers Union

CWU
PENSIONS SEMINAR
History of Pensions and Royal
Mail Pension Schemes
1970
-
Scheme set up
“POSSS” – Move away from
civil service.
1st April 1987
-
POSSS scheme closed
PoPs scheme opened
2000
-
Schemes merge but not
benefits
2000
-
Major changes to PoPs
(£3328 LED / 6%)
2000
-
Royal Mail DC scheme opened
Royal Mail Pension Plan
Employee Members
167,311
Pensioner Members
175,568
Deferred Members
108,988
Total Membership
451, 967
Active Membership distribution by age
Number of records
35000
30000
25000
20000
15000
10000
5000
0
16-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 >=65
Age
Pensioners Membership distribution by
age
Number of records
30000
25000
20000
15000
10000
5000
0
<50
50-54
55-59
60-64
65-69
70-74
Age
75-79
80-84
85-89
>=90
Deferred Membership distribution by
age
Number of records
30000
25000
20000
15000
10000
5000
0
20-24
25-29
30-34
35-39
40-44
45-49
Age
50-54
55-59
60-54
>=65
So Why and What are the Problems?

Longevity - Men & women living longer

Low interest rates (Gilts & Bonds)

Investment returns predicted to be lower
than expected (Equity / Property)
Q: What is the size of the pension
problem facing Royal Mail?
A:
2003 valuation
2006 valuation
Deficit
5%
10%
Ongoing
12.6%
20%
Total
Contribution
17.6%
30%
Note: Total pay bill £3.3 billion
Note: Royal Mail cost per £1 of pensionable pay 30p
Royal Mail’s Pension Cost 2006
Deficit
£3.5 billion paid over
17 years agreed
with scheme trustees
(£268 million pa)
Future Pension Costs
Ongoing pension
contributions
£581 million (pa)
Pension Plan: 5 year History
Contribution & Assets
2003
2004
2005
2006
2007
£million
£million
£million
£million
£million
Employer
Contribution
248
648
670
526
789
Employees
192
176
174
182
183
Assets
11,954
15,252
17,246
21,882
23,460
2003 Valuation Assumption
Life expectancy at age 60:
Category
Men
Women
Pensioner
22 years
25 years
Projected 2026
23.5 years
26.5 years
2006 Valuation Factual
Life expectancy at age 60:
Projected 2026
Men
Women
26 years
29 years
27.5 years
30.5 years
Actuarial Valuation 31 March 2006
Employers’
Contributions
Investment Return
(Future Service)
Employees’
Contributions
Employer’s
(Deficiency)
.................…………......Liabilities £25.3bn
(2003 valuation £14.5 billion)
…..….........…………..............Assets £21.9bn 86.6%
Benefits
Expenses
Actuary
Q: What is Royal Mail’s objective?
A: To lower its “Risk and Exposure” to
pension volatility.
3 Areas of Risk:
Past Services
£3.5 billion
Future Services
£580 million
New Entrants costs
£1.5 billion of
£2 billion
Royal Mail De-Risking Proposal
Leaked document July 2007:




Close scheme to new starters
Retirement age increased to 62 in 2008, 65 in 2010
Either – future pensionable pay increases restricted
to RPI capped at 5%
Or - CARE scheme indexed to RPI capped at 5%
Service to date of change increased by RPI capped
at 5%
CWU Position



Full protection of benefits accrued to
date of change by maintaining final
salary link
Right to retire at 60 for existing scheme
members
A defined benefit scheme open to all
including new starters
The Proposals

Past service protected before 1 April ’08

Pensions paid at age 60

Pension based on final salary

Royal Mail committed to paying off deficit

Change retirement age to 65

Introduce a CARE scheme
CARE Scheme
Career Average Revalued Earnings (CARE)
schemes provide a level of benefit based on
average salary over an entire career. Earnings
from years before retirement or leaving are
increased so they keep their real value.
CWU Position
“Willingness to accept changes which reduce
the ongoing employer contribution on the basis
that any changes should be agreed with the
union prior to the formal consultation exercise
with members. We have sought to fully
protect accrued benefits to date and
mitigate the impact of any changes going
forward”
Reps Briefing 28/9/2007
What alternatives?
Increase in employee contributions?
RULED OUT
What alternatives?
Government funding?
£850 million in Escrow account – only available
if company becomes insolvent
EU Rules on state aid
WOULDN’T SOLVE PROBLEM
Next Steps
Timetable
Consultation ends 16-01-08
CARE
Benefits & Detail
New Entrants
Type of scheme
Indexation
RPI vs ?
CARE Scheme
Year Start
Year End Earnings
Pension
Revalued at
31/03/2014
4/1/04
4/1/05
4/1/06
4/1/07
4/1/08
4/1/09
3/31/05
3/31/06
3/31/07
3/31/08
3/31/09
3/31/10
£8,100
£9,600
£9,300
£9,800
£10,200
£10,500
£101.25
£120.00
£116.25
£122.50
£127.50
£131.25
£126.45
£146.21
£138.18
£142.06
£144.25
£144.88
4/1/10
4/1/11
4/1/12
4/1/13
Total
3/31/11
3/31/12
3/31/13
3/31/14
£9,500
£9,100
£7,500
£8,500
£118.75
£113.75
£93.75
£106.25
£127.88
£119.51
£96.09
£106.25
£1,291.76
Pension
Final Salary Scheme
Years of scheme membership X 1/80th X pensionable
earnings
Pension
10 years X 1/80th X £8,500
Total Pension
£1,062.50
Pension Calculation Section B
(POSSS)
Pensionable Pay
£18k
Pensionable Service
25 years
25 x £18k
80
Lump sum calculation:
= £ 5,625
£5,625 x 3
= £ 16,875
Pension Calculation Section C (PoPs)
Pay
£ 18k
Lower Earnings Deduction
£ 3,328
Pensionable Pay
£ 14,672
Pensionable Service
15 years
15
x £14,672
= £3,668
60
Pension Supplement paid to state pension age:
15 x £3,328
= £ 832
60
Total pension
£ 4,500