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SMART Pensions

19 January 2011

London Midland is planning to introduce SMART Pensions from 13th March 2011 for all staff who are contributing members of the Railways Pension Scheme (RPS). TSSA has objected to the move as the Company has failed to give adequate safeguards for low-paid staff, and will use the vast majority of their savings to boost profits.

SMART Pensions are a form of “salary sacrifice” scheme, where deductions are made before National Insurance Contributions (NICs) are calculated. Therefore, both the employee and employer save the NICs that would be due on the amount deducted (e.g. a member earning £25k would save around £190, and the employer around £180, per year). This results in the employee’s salary being reduced by the amount of their pension contribution, and the employer making the payment into the fund on their behalf. A record of the original (pre-SMART Pension) salary is kept for use when calculating any pay-related benefits (overtime, pensionable pay, future pay increases etc.), and as confirmation of earnings for loan or mortgage applications. However, members on low pay are potentially at risk of losing access to certain state benefits (SMP, SSP, Job Seekers Allowance etc.) if the resulting salary reduction takes them below the Lower Earnings Limit (LEL).

TSSA argued throughout the discussion at the recent Company Council meeting, that the Company’s savings (£150k - £200k p.a.) should be put back into the Pension fund to reduce any future deficit. The Company did agree to pay 5% of their savings into the fund if participation rates of those eligible reached 50%, and 7.5% if this reached 80%. Although this principle was welcomed, the amount is insignificant when compared to their savings. We are also concerned at the wider social consequences of money which should be going to the NHS and into the welfare pot, being siphoned off to boost a private company’s profits.

London Midland also refused to make the scheme “opt-in” rather than “opt-out”, meaning all eligible staff will automatically be opted-in to the scheme unless they object. This is especially concerning for some low-paid members who may not benefit at all from the scheme, and lose access to some state benefits into the bargain. Part-time staff and those on maternity leave are amongst those affected, making this a potential discrimination issue too. TSSA argued that the Company has a particular responsibility to ensure these members are individually identified, are warned of the dangers of entering the scheme, and that London Midland must give a commitment to underwrite any losses to members caused by the scheme. Although the Company agreed to individually identify those affected and opt them out of the scheme, they would not give a sufficient commitment to make good any losses due to their omissions or actions in running the scheme. This is unacceptable, and potentially puts low-paid members at unnecessary risk.

TSSA will continue to challenge London Midland on SMART Pensions to ensure vulnerable members are protected, and to fight for a larger share of savings to go into the Pension fund to minimise any future deficit. After all, pensions are deferred pay and you have a right to expect your employer to take the necessary steps to protect your interests and ensure your security in retirement.

If you require any further information on the contents of this circular, please contact your staff reps in the first instance. However, TSSA is not licensed to give financial advice and would recommend you consult an independent financial advisor if your query relates to this. Please also discuss the contents of this circular with your colleagues, and encourage any non-members to join. The more members we have, the stronger our negotiating position becomes. Membership application forms can be obtained from your TSSA reps. Alternatively, call the membership hotline on 020 7529 8018 or join on-line at

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