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Colas Rail Railways Pension Scheme (Colas Rail Section) 2013 Valuation

25 March 2015

Over several months TSSA has been in discussions with the Company to address problems arising from the shortfall in the funding of the Colas Rail Section of the Railways Pension Scheme (the Scheme) and the impact this has on the contribution rates needed going forward to pay for benefits. Please note that this does affect those in the Colas Defined Contribution Scheme.

 

The valuation as at 31st December 2013 disclosed a funding level of only 87.5%. Amongst other things this meant that for members to continue to qualify for the same scale of benefits presently provided would require a massive Joint Contribution Rate (JCR) of 87.5%. The employee contribution rate would be 35.8% and an employer contribution rate of 53.7%. There had been further deterioration in the Scheme’s funding since the last valuation at the end of 2010 when it was at a funding level of 87%. This deterioration was due in the main to poorer investment returns than those initially predicted by the actuary. At the last valuation the trade unions and Colas agreed to benefit changes and the availability of a SMART pension that reduced the contribution level for the employee to 14% if in the SMART pension.

The TSSA requested that the company inject some money into the scheme to counteract the short fall of £21 million, Colas Rail were not willing to do this, but will be contributing £2 million per annum to reduce the shortfall. TSSA and Colas Rail explored if we could examine future changes to benefits that could reduce the contribution rates, the result was that we could change some benefits but doing so would only have a marginal impact on the contribution rates for members. In essence you would be paying substantially more for reduced benefits. The result of this is that the scheme will remain open but the contribution rate for those wishing to remain contributing to the fund will 35.8% of your salary, this change in contributing rates will occur on the 1st July 2015.

However, Colas has proposed to introduce a Defined Contribution scheme for those currently in the Railway Pension Scheme. This scheme is run by the Railway Pension Scheme, and after discussions with Colas Rail they have proposed some improvements to this DC scheme. This DC scheme will be available to all employees who are currently members of the Railway Pension Defined Benefits Scheme.

The DC scheme will have the following contribution levels, which each individual can chose to pay and which will be matched by Colas Rail as per the following table:

Employee

Employer

3%

7%

4%

8%

5%

9%

6%+

10%

There would be a normal retirement age of 60 and death in service benefit of 4 times basic yearly salary and also a medical severance scheme.

The TSSA does not pretend that the Defined Contribution Scheme is as good as the current Defined Benefit Scheme, however we recognise that the contributions levels in the DB scheme are going to be so high that most members will struggle to afford them. We also recognise that the proposed alternative DC scheme is run by the Railway Pension Scheme with higher contributions rates available than other DC schemes.

It is for each individual to decide on whether they stay in the DB scheme or not and whether they join the DC scheme. Colas Rail has stated they will provide a roadshow with independent advice on this matter.

TSSA can also provide independent Financial Advice through Martin Keal of Keystone.

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