We wanted to give you an update re the SAUL pension scheme – please feel free to ignore if you are in USS or no scheme at all.
What is happening?
As you might already know, the SAUL pension scheme is in the middle of its three-yearly valuation. Negotiations are currently ongoing with the employers about what can be done to plug the deficit gap (which they claim is projected to be £118m).
The likely scenarios are doing something to SAUL that is similar to what has just happened to USS – previous members who had remained on a final salary scheme are likely to be moved into a career average scheme, possibly with a slightly better accrual rate and more employer contributions, possibly with a few other negative changes.
The employers haven’t presented a final scheme yet. There is a last negotiating meeting at the end of this month, then the employers will come up with something final at some point between then and June, which the unions will vote on, following which there will be the official employee consultation. If accepted, changes would be likely to be introduced April 2016.
What can we do?
As you can see, there are a variety of different and complex options being considered. The employers will inevitably be pushing for a solution which costs them less, and will almost certainly try and argue that any other solution will threaten the very viability of the scheme.
However, there’s nothing inevitable about any of these changes. The current pessimistic valuation is only an estimate, and in addition there is plenty of scope for the employer to increase their contributions.
These pensions are our future income – a reduction in what gets paid out, or an increase in our contributions, means we have essentially received a pay cut.
What deal we end up with depends, as ever, on the strength of opposition we can show. The IWGB will be calling to reject any proposed scheme that removes the final salary link and which does not substantially increase the employer contribution. We will also be calling on other unions to do the same. If the employers see a united front, then we will stand a better chance of retaining a better pension.
We’ll be discussing this at the next IWGB branch meeting on Friday 27 March, but please do let us know if you’ve got any questions (or suggestions!)
See below and attached for details – it’s pretty complex stuff!
Details (see also the attached chart)
There are three different options currently being considered by SAUL negotiating committee (A, G and I on the attached chart) with slight variations on each being modelled (B, B1, G1, G2, I1 on the attached chart).
The options are outlined in detail on the ‘updated scenario document’ attached and are summarised below. Options entitled A – G all see everyone moving onto a CARE (Career Average) scheme for future pension service accrual whilst option I maintains the Final Salary scheme for those currently on it. We will try and demystify the options below, but we do understand that the chart is quite complicated to follow.
Options A and B
Options A and B are fairly similar to each other, with variations on employer and employee contributions. A and B see everyone move to the a scheme similar to the current CARE scheme (members who joined SAUL after September 2012 are already on this Career Average scheme) with some differences as follows:
Pension accrual remains the same for both A and B with 1/80th for each year of service and 3/80th cash lump sum.
A sees employers put in extra 2%, B employers put in an extra 3%.
A employee contributions stay the same, B employee contributions drop from the current 6% to 5%.
A and B have future service payment increases capped at 2.5% (reversible on payment).
Employers have made it clear that they are considering option A rather than B.
This option is similar to A and B, it will also move everyone onto the CARE scheme; however, it will also see employers putting in an additional 4% and service accrued at the faster rate of 1/75th per annum with 3/75th lump sum. (Faster accrual rates are better for members of the scheme and would increase your pension and cash lump sum).
Options A, B and B1 provide final salary link protection. This means your contributions under the final salary scheme to date will be protected, only future service will move to career average (CARE). However, all three options have future service payment increases capped at 2.5% CPI (Consumer Price Index). This is a way of trying and keep the deficit down and allows the actuaries to say with more certainty what levels of future funding will be, but if capped at 2.5% p.a then the annual increase for pensions and payments may be capped at this level (for future service) .
Options G, G1 and G2 show everyone moving to a CARE scheme on the faster accrual rate of 1/75th per annum with 3/75th lump sum. The difference between them lies in different employer and employee contributions.
Options G, G1 and G2 give different employer contributions of either an extra 1%, 2% or 3%.
Options G, G1 and G2 give different employee contributions of either 6% or 5%.
Options G, G1 and G2 will not have any capping of pension paid.
It differs from options A and B in that in all of the options G, G1 and G2 the final salary link is broken for service accrued to date, all service accrued would be transferred to career average (CARE).
The benefits to members would be no capping of CPI at 2.5% and a faster accrual rate. Employers have made it clear that they will only consider an option along these lines if the final salary link is broken, which the unions are arguing against.
In Options I and I1 those in the final salary scheme will remain in the final salary scheme. The final salary scheme will be modified as follows:
Options I and I1 give different employer contributions of either an extra 3% or 4%.
Options I and I1 see employee contributions remain at 6%.
In both, Normal retirement age rises to 65 (it is currently possible to retire on full pension from 60 in the final salary section – average retirement age is 62).
In both, Service continues to be accrued on 1/80th for each year of service.
In both, Lump sum accrual (for future service only) will move to 3/85th.
In both, future service payment increases capped at 2.5% (reversible).
Option I and I1 allow all current final salary scheme members to remain on final salary schemes rather than move to career average (CARE). However, normal retirement age will rise to 65, and future accrual of the lump sum is the lowest of all the current options. CPI increases will also be capped.
With a valuation like the above, changes to the scheme are inevitable. Obviously the employers in the scheme would prefer their own contributions to be kept low and for the final pay-outs to be cut. That keeps their balance sheets looking nice and tidy. However, what we as union members and members of SAUL need to do is keep pushing to protect the Final Salary scheme for those currently in it and to ensure that we’re not taking an effective pay cut, either now or when we retire. Problems with the scheme have been caused by poor management of it and we need to ensure the employers are aware of the human cost of their decisions. Do take some time to read the document, and make sure you know what you think the option should be. As ever, feel free to drop us a line if you have any questions!