LTB:European Commission State Aid Announcement – Pensions

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Letter to Branches




No: 186/12
Ref: 67000
19th March 2012

TO: ALL BRANCHES WITH POSTAL MEMBERS

Dear Colleague

European Commission State Aid Announcement – Pensions

We expect an announcement on Wednesday 21st March 2012 confirming that the European Commission has granted Royal Mail State Aid and the Government led pension solution will now be implemented on the 1st April 2012. All Postal Branches will be aware the CWU has long campaigned for a Government Pension solution even though we remain fundamentally opposed to privatisation.

Without the pension solution the existing Scheme will be under major threat of closure and the company’s finances will deteriorate rapidly, bringing with it an even greater threat to jobs. With this solution our members will have greater security for their pensions and it will also help transform Royal Mail’s finances.

It means the Government will take over the historic pension’s deficit currently valued at around £8.4 billion and that they will also be responsible in the future for payment of our members pension benefits built up prior to the 1st April 2012.

What the pension changes will mean to CWU members:

It will provide much greater security for our members’ pensions.
There will be no change to members’ contribution rates or retirement age.
The total value of pension benefits are protected.
Our members will still receive their pension information from Chesterfield and there will be no action required by individuals.

The transfer of Liabilities and Assets

As previously explained, as part of the legal process for the Government to implement this solution and to offset some of the ongoing costs that will be incurred by the tax payer, the Government will also acquire the majority of the Scheme’s assets and are likely to sell these in the near future.

The Union has raised concerns about the level and quality of assets being left behind and whether this is sufficient to fund the remaining pension element that Royal Mail will continue to be responsible for, including the final salary link. Therefore, in discussions with the Government and Royal Mail we engaged Independent Pension Lawyers and Actuaries to ensure that the appropriate legal safeguards were in place. As a result, the advice we have been given from the independent Pension Experts is that the transfer of liabilities and assets is being carried out on a sound basis and the remaining scheme will be completely deficit free and 100% fully funded going forward.

CWU members have also received Communications from the independent Royal Mail Pension Plan Trustee Board. It is the Trustees who have the ultimate legal responsibility for overseeing this process and they have confirmed that the transfer of liabilities and assets is being allocated in a way that is in the interests of Scheme members.

Privatisation

All Branches will be aware that the Postal Services Act 2011 links the issues of pensions, regulation and privatisation.

It is important that we explain to our members that whilst the Union remains fundamentally opposed to privatisation, we have always supported the need for a pension solution and a change in regulation.

The truth is without the pension solution the consequences will be very severe, including the strong possibility of the pension scheme being completely wound up. This would still remove a barrier to privatisation but without securing our members pensions. Without this change it will be a lose-lose situation for CWU members.

The Government continues to advise the CWU that at this stage it is very unlikely they will proceed with a sale of the business in 2012. The Union will continue to oppose privatisation whilst recognising that it is in the interest of our members that we engage the Government on all the issues associated with the Postal Services Act.

Conclusion

We have attached to this LTB an advanced section of the Pensions Pamphlet that is being sent to members’ home addresses. This will be accompanied by a letter which explains the key pension issues and also covers other aspects of the Postal Services Act including privatisation and regulation.

We have also included a CWU Representatives Brief covering key messages.

Given the importance of these developments we would ask that Branches immediately ensure that the content of this LTB is distributed to all workplaces and that our Local Representatives are provided with the attached information.

At this stage we have no more information on the detail of the Government’s announcement and are not in a position to comment on whether or not the EU have attached any conditions to State Aid approval. Further information will be sent out in due course.

Any enquiries on this LTB should be addressed to the DGS(P) Department.



Yours sincerely



Dave Ward
Deputy General Secretary (P)

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SECTION 2 - The Postal Services Act Pension Changes - What they mean to you

As part of the Postal Services Act 2011 we expect the pension solution to be implemented on the 1st April 2012. The following is an explanation of the key changes that will take place.

The New Government Scheme

For the Government to take on the pension’s deficit and future payment of pension benefit built up before 1st April 2012, the bulk of the existing Pension Scheme liabilities and the majority of the schemes assets will be transferred to a new Government scheme. This will be called “The Royal Mail Statutory Pension Scheme (RMSPS)”.

Under the Act of Parliament the new Government scheme is legally protected from future changes and ring-fenced from other Government schemes. The Act of Parliament stipulates that members’ benefits will not be adversely affected by the transfer to the new scheme.

For active members, the new Government scheme will be responsible for providing a pension for the benefits you have built up to the date of transfer (expected to be the 31st March 2012).

For retired and deferred members at the date of transfer (expected to be the 31st March 2012), the new Government scheme will be responsible for providing all future pension benefits.

The new Government scheme will not have investment funds. The pension benefits it is responsible for will be underwritten by the Government and funded by the taxpayer. The Government will dispose of a proportion of the assets of the existing scheme to offset some of these costs.

The new Government scheme will have its own governance structure which will include Union representation.

The Remaining Royal Mail Pension Plan

For active members, going forward the company will continue to operate the Royal Mail Pension Plan and this will be responsible for payment of pension benefits built up after the transfer date (expected to be the 31st March 2012) and also for maintaining the final salary link.

The remaining Royal Mail Pension Plan will be fully funded and deficit free at the point of transfer. A proportion of the assets will be left behind to help fund future benefits and maintain the final salary link. It will mean the Royal Mail Pension Plan is a smaller fund which should be less volatile in the future.

The remaining Royal Mail Pension Plan will be divided into two sections. The Royal Mail group (including associated employers such as Romec and Quadrant) and Post Office Limited. In the future, these two sections will operate separately.
What these Changes Mean to You

For active members these changes will not increase your contribution level or retirement age and there will be no change in the total value of your pension benefits.

For retired and deferred members at the date of transfer (expected to be 31st March 2012) all your future pension benefits will be provided from the new Government scheme.

Both the new Government scheme and the remaining Royal Mail Pension Plan will be jointly administered at Chesterfield. You will still have the same single point of contact for all enquiries.

For active members, when you retire, your pension will come from two separate pension pots - but will be presented as one overall pension.

Without these changes the current Pension Scheme arrangements will not be sustainable – with these changes you will have much greater security.

You do not need to take any action when these changes take place. It will all be done through the current Administration Centre at Chesterfield.

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European Commission State Aid Announcement – Pensions
CWU Representatives Brief 19th March 2012 – Key Messages

We expect an announcement on Wednesday 21st March 2012 that the European Commission has granted Royal Mail State Aid and the Government led pension solution will now be implemented on the 1st April 2012.

We would ask that CWU Representatives convey the following key messages to our members:

The CWU has long campaigned for a Government led pension solution even though we remain fundamentally opposed to privatisation.

Without the pension solution the existing Scheme would be under major threat of closure and the company’s finances will deteriorate rapidly bringing about an even greater threat to jobs.

With the pension solution our members will have much greater security for their pensions and Royal Mail’s finances will be transformed.

The pension solution means the Government will take over the historic pension deficit currently valued at around £8.4 billion and they will also be responsible in the future for payment of pension benefit built up prior to the 1st April 2012.

As part of the legal process for the Government to implement this solution and to offset some of the ongoing costs that will be incurred by the tax payer, the Government will also acquire the majority of the Scheme’s assets and are likely to sell these in the near future.

The Union engaged independent Lawyers and Actuaries to ensure the appropriate legal safeguards were in place. They have confirmed that the transfer of assets and liabilities is being carried out on a sound basis.

The Independent Pension Trustee Board have the ultimate responsibility for ensuring the transfer of liabilities and assets are being correctly allocated. They have confirmed this is being done in the interests of Scheme members.

What the pension changes mean to CWU members:

It will provide much greater security for our members’ pensions.
There will be no change to members’ contribution rates or retirement age.
The total value of pension benefits are protected.
Our members will still receive their pension information from Chesterfield and there will be no action required by individuals.

The Postal Services Act linked the issues of pensions, regulation and privatisation. The Union has always opposed privatisation but has always supported the pension and regulation elements of the Postal Services Bill.

Without the pension solution the consequences will be very severe, including the very real possibility of the pension scheme being completely wound up. This would still remove a barrier to privatisation but without securing our members pensions. Without this change it would be a lose-lose situation for CWU members.

CWU members will receive a letter and pamphlet to home addresses next week explaining all of these changes.