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Amey Inter Urban: Amey Rail Pensions Scheme

25 January 2012

To advise members on the latest Tri annual review and the proposals from Amey as a result of the valuation up to the end of December 2010 on the Amey Rail section of the Railway Pensions Scheme (RPS).

 2010 Valuation

Every 3 years there is a valuation carried out on all the sections of the railway pensions scheme to monitor their funding levels. The overall objective of this exercise is to ensure that the various sections have enough funds to pay out the overall projected costs, in other words have enough to pay your final salary pensions. Due to the financial climate many schemes have had problems ensuring that they are fully funded. Despite changes implemented by Amey and the government in recent years to decrease the overall cost of the Scheme during 2011 it was apparent that the Amey Rail section was still under funded.

With the Amey Rail section the problem hasn’t just been with the outward climate but also with the way that the pensions actuaries have assessed Amey Inter Urban’s ‘covenant rating’ which is a rating designed to assess their ability to meet future pensions obligations. This is measured on a scale of 1(best) to 6 (worst), in 2007 the Amey Inter Urban had a covenant rating of 2 and at the point of the December 2010 valuation this was assessed as a 4 which at that time meant that there was a £41million deficit in the scheme.

Amey has worked with RPMI during 2011 to increase this covenant rating and through a limited guarantee from the group company have managed to increase this rating to a 3 which means that the deficit has reduced to £23.5million. As there is a deficit in the scheme the company will have to put in place what is known as a recovery plan to put in place measures to fund the deficit and the projected future costs of the scheme.

What has happened in previous years?

After the 2007 valuation there was a £7.1million deficit in the scheme and the projected future costs of funding pensions was 31.7% of section pay. If paid as per the rules on a 60 (employer): 40 (employee) basis the future costs alone would have been 12.68% for employees and 19.02% for the employer. Instead the company paid more than their 60% of future costs and the entire deficit setting employee contributions at the current rate of 10.56% for 3 years with the intention of increasing these to match the future costs from July 2012. To fund the deficit the company agreed to make the following payments of £1 million in January 2008, £2.589 million in January 2009 and £1.625 million each January from 2010 till 2016.

How does this impact on me?

Since December TSSA and RMT have been meeting with the company to go over their proposals. Originally the company wanted employees to partially meet the costs of the current deficit over a 10-year recovery plan. This would have seen our members contributions increase from the current 10.56% to 15% by July 2014 and the company increasing their payments to £2 million every January from 2013 till 2020.

Instead both unions pushed for a longer recovery period to try and ensure that contribution rates would not need to increase by so much.

The company then came back with the following proposal:

  • For contributions rates to increase by the current estimate of future costs which is 30.1% of section pay or 12.04% for employees and 18.06% from July 2012
  • For the company to fund the deficit in full over an 11 year period increasing their payments to £2 million every January from 2013 till 2021
  • To enable this the scheme trustees must also agree to an assumption that the schemes assets will also outperform or get better returns than those currently estimated.

We need your views

Whilst these changes will impact on members we have to take on balance the fact that the company are prepared to fund the deficit in full rather than have the full brunt of both future costs and the deficit impact on members of the scheme. The company has also taken on board previous feedback from the previous pay capping exercise and has decided not to propose any further changes to the benefits that you will receive from the scheme.

In a climate where more and more pensions schemes are either being shut or both funding and benefits of schemes are being drastically altered we believe that having the assurance that a Final Salary scheme brings is worth the proposed increases to contributions.

We are recommending acceptance of this offer and are asking you to complete a quick online survey to make your views known to us

The company have asked for a response before 31st January from the trade unions and whilst this timing is not ideal we still wanted to gauge members opinions before responding to the company formally. Please do your best to complete the survey by 12 noon on Monday 30th January.

Whatever happens the company will still be obliged to hold a 60 day consultation with members to demonstrate to the trustees that they have fully engaged with members of the scheme before putting in place any measures.

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