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Freightliner Group - Triennial Valuation of the Railway Pension Scheme (RPS)

18 November 2014

The Railway Pension Scheme undertakes a valuation of its assets against the liabilities that it has to pay out every three years; the valuation last took place on 31 December 2013.

We met with the company last week and they informed TSSA that that the 2013 valuation has calculated the Freightliner Section of the RPS to be £11.8m in deficit. The Pensions Trustees are responsible for addressing any deficit and ensuring the Section is fully funded so that it can meet its liabilities. In order to do this, the company have proposed increasing the Joint Contribution Rate over a recovery period of ten years and are seeking the unions’ formal agreement on this course of action. No changes to members’ pension benefits have been recommended.

The Company proposals (received formally on 17th November) would give a JCR (Joint Contribution Rate - both employer and employee contributions) of 29.35% (31.35% for the small number of higher rate members), effective from 1st July 2015.

The current JCR is 27.15% so this will be an increase of 2.2%, which retaining the 60:40 split means for the employee an 0.88% increase in contributions up from 10.86% to 11.74% (12.54% higher rate members), and for Freightliner an increase of 1.32% to 17.61%.

 

What would change?

 

Previously at the 2010 Valuation where the scheme was in minor deficit the Joint Contribution Rate increased as below:

Employee contributions from 1stJuly 2012:

 

Previous Rate

from 1/7/2012

Standard Contribution

10.00%

10.86%

Higher Rate Members

10.80%

11.66%

 

Employer contributions from 1stJuly 2012:

 

Previous Rate

from 1/7/2012

Standard Contribution

15.00%

16.29%

Higher Rate Members

16.20%

17.49%

 

This proposal would mean the following change in the JCR effective 1 July 2015

 

Employee contributions from 1stJuly 2015:

 

Previous Rate

from 1/7/2015

Standard Contribution

10.86%

11.74%

Higher Rate Members

11.66%

12.54%

 

Employer contributions from 1stJuly 2015:

 

Previous Rate

from 1/7/2015

Standard Contribution

16.29%

17.61%

Higher Rate Members

17.49%

18.81%

The TSSA and joint trade unions position on maintaining the affordability of the RPS recommends an employee contribution rate of no more that 10.86% but the only way to maintain this level of contribution where a section is in deficit would be to reduce pension benefits or to put in place a much longer recovery period. However given the fact that Freightliner Group does not enjoy the same level of crown protection as a Train Operating Company they are required to recover the deficit over shorter timescale, hence a ten year recommendation.

The TSSA maintains that the RPS must be affordable for our members and we have also again asserted that new staff should be auto enrolled into RPS to maintain a steady flow of new members which in turn assures the future financial health of the scheme, Freightliner still asserts that new staff should have the choice of the RPS and Industry Wide Defined Contribution Scheme so as to maintain the level of choice of affordability for both the new employee and the employer.

Whilst the contribution increase for members of the scheme will be untimely, it also has to be acknowledge that there is an increase to the employer as well, which is a sign of commitment to the RPS. TSSA, in the face of possible changes to pension benefits as the only alternative to this are minded to give support to the changes recommended by Freightliner to address this deficit.

What’s next?

TSSA will need to respond formally to the company no later than 27th November 2014. We ask that you feedback any comments before we respond to the company no later than 26th November 2014 via email  and let us know your views.

Following this the company are required to consult with member of the RPS for a period of 60 days before any changes can be agreed going forward. The company inform us that this will commence from 19th December 2014.

 

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