CWU PENSIONS SEMINAR. History of Pensions and Royal Mail Pension Schemes.
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Transcript of CWU PENSIONS SEMINAR. History of Pensions and Royal Mail Pension Schemes.
1970 - Scheme set up“POSSS” – Move away from
civil service.
1st April 1987 - POSSS scheme closedPoPs scheme opened
2000 - Schemes merge but not benefits
2000 - Major changes to PoPs (£3328 LED / 6%)
2000 - Royal Mail DC scheme opened
Royal Mail Pension Plan
Employee Members 167,311
Pensioner Members 175,568
Deferred Members 108,988
Total Membership 451, 967
Active Membership distribution by age
0
5000
10000
15000
20000
25000
30000
35000
16-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 >=65
Nu
mb
er o
f re
cord
s
Age
Pensioners Membership distribution by age
0
5000
10000
15000
20000
25000
30000
<50 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 >=90
Nu
mb
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f re
cord
s
Age
Deferred Membership distribution by age
0
5000
10000
15000
20000
25000
30000
20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-54 >=65
Nu
mb
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Age
So Why and What are the Problems?
Longevity - Men & women living longer
Low interest rates (Gilts & Bonds)
Investment returns predicted to be lower than expected (Equity / Property)
Q: What is the size of the pension problem facing Royal Mail?
A: 2003 valuation 2006 valuation
Deficit 5% 10%
Ongoing 12.6% 20%
Total 17.6% 30%Contribution
Note: Total pay bill £3.3 billion
Note: Royal Mail cost per £1 of pensionable pay 30p
Royal Mail’s Pension Cost 2006
Deficit £3.5 billion paid over 17 years agreed with scheme trustees (£268 million pa)
Pension Plan: 5 year HistoryContribution & Assets
2003 2004 2005 2006 2007£million £million £million £million £million
Employer 248 648 670 526 789Contribution
Employees 192 176 174 182 183
Assets 11,954 15,252 17,246 21,882 23,460
2003 Valuation Assumption2003 Valuation Assumption
Life expectancy at age 60:
Category Men Women
Pensioner 22 years 25 years
Projected 2026 23.5 years 26.5 years
2006 Valuation Factual
Life expectancy at age 60:
Men Women
26 years 29 years
Projected 2026 27.5 years 30.5 years
Actuarial Valuation 31 March 2006
Employees’ Contributions
Benefits
Expenses
Actuary
Investment ReturnEmployers’Contributions(Future Service)
Employer’s(Deficiency)
86.6%
.................…………......Liabilities £25.3bn (2003 valuation £14.5 billion)
…..….........…………..............Assets £21.9bn
3 Areas of Risk:
Past Services £3.5 billion
Future Services£580 million
New Entrants costs£1.5 billion of
£2 billion
Royal Mail De-Risking Proposal
Leaked document July 2007:
Close scheme to new starters Retirement age increased to 62 in 2008, 65 in 2010 Either – future pensionable pay increases restricted
to RPI capped at 5%Or - CARE scheme indexed to RPI capped at 5%
Service to date of change increased by RPI capped at 5%
CWU Position
Full protection of benefits accrued to date of change by maintaining final salary link
Right to retire at 60 for existing scheme members
A defined benefit scheme open to all including new starters
The Proposals
Past service protected before 1 April ’08
Pensions paid at age 60
Pension based on final salary
Royal Mail committed to paying off deficit
Change retirement age to 65
Introduce a CARE scheme
CARE Scheme
Career Average Revalued Earnings (CARE) schemes provide a level of benefit based on average salary over an entire career. Earnings from years before retirement or leaving are increased so they keep their real value.
CWU Position
“Willingness to accept changes which reduce the ongoing employer contribution on the basis that any changes should be agreed with the union prior to the formal consultation exercise with members. We have sought to fully protect accrued benefits to date and mitigate the impact of any changes going forward”
Reps Briefing 28/9/2007
What alternatives?
Government funding?
£850 million in Escrow account – only available if company becomes insolvent
EU Rules on state aid
WOULDN’T SOLVE PROBLEM
Next Steps
Timetable
Consultation ends 16-01-08
CARE
Benefits & Detail
New Entrants
Type of scheme
Indexation
RPI vs ?
CARE Scheme
Year Start Year End Earnings Pension Revalued at 31/03/2014
4/1/04 3/31/05 £8,100 £101.25 £126.454/1/05 3/31/06 £9,600 £120.00 £146.214/1/06 3/31/07 £9,300 £116.25 £138.184/1/07 3/31/08 £9,800 £122.50 £142.064/1/08 3/31/09 £10,200 £127.50 £144.254/1/09 3/31/10 £10,500 £131.25 £144.88
4/1/10 3/31/11 £9,500 £118.75 £127.884/1/11 3/31/12 £9,100 £113.75 £119.514/1/12 3/31/13 £7,500 £93.75 £96.094/1/13 3/31/14 £8,500 £106.25 £106.25Total £1,291.76
Final Salary SchemePension Years of scheme membership X 1/80th X pensionable
earnings
Pension 10 years X 1/80th X £8,500
Total Pension £1,062.50
Pension Calculation Section B (POSSS)
Pensionable Pay £18k
Pensionable Service 25 years
2580
x £18k = £ 5,625
Lump sum calculation:
£5,625 x 3 = £ 16,875