As the deadline passes for BBC staff to sign up to the corporation's new career average plan, Anna Lyudvig analyses how schemes can manage such a move
The BBC scheme has said more than 8,000 active members joined its career average scheme before the window closed on January 1.
Tips for career average comms
Schemes that have moved or are moving to career average, provide the following lessons on a successful process:
London Pension Fund Authority
Career average is generally regarded as fairer, but it is much more difficult for a member to work out their likely pension;
The shift has a big member communication cost, but some members could be better off after the change.
Royal Mail Pension Plan
The main driver for the change was normally cost, said Sackers partner Robin Simmons, who advised Royal Mail on its move to career average;
Member communications should explain what the change means to them, and provide comparisons with other companies.
The new scheme was open to all who were active members of the previous final salary plan at November 2010.
The end of this benefit led to strikes and lengthy negotiations at the broadcaster last year over what would replace it.
As the government implements the Hutton recommendations, public sector schemes are set to follow the corporation's lead in negotiating a move to career average to staff.
The London Pension Fund Authority (LPFA) has said certain salary arrangements might "soften the blow" for its members.
Schemes should set out clearly the reasons behind any moves to change a pension scheme, consultants have urged.
In order to ensure the widest acceptance of the package, schemes making such a change to benefits should use comparisons to explain the offer to members.
Involving member organisations could also determine the success of cost-cutting changes to benefit structures.
Reducing future costs
Although final salary is still the most common form of defined benefit (DB) scheme, career average schemes have started to get a lot of attention from companies in recent years.
The BBC's move to career average was held up by member concerns, mediated by unions, about the availability of additional voluntary contributions under the Care alternative.
Now members have the opportunity to provide matched contributions up to a maximum of £25 a month through the BBC's defined contribution scheme, LifePlan.
The change from one scheme to another is not necessarily easy, but it depends on the statutory regulations that accompany it, said LPFA’s chief executive Mike Taylor.
“It will not be a blow to everyone," he said. "The average member should be at least no worse off and could get a better pension depending on the accrual rate and earnings revaluation arrangements.
The communication strategy should not only explain what it means, but also provide comparisons
“The proposed link for existing service up to the date of change to final salary will also help soften the blow for current members.”
The switch from final salary to career average scheme can help the scheme to reduce its current deficit and reduce the future risks and costs.
At the end of December 2011 the number of DB schemes in deficit increased to 5,473, representing 83.8% of all such schemes, according to the latest data from the Pension Protection Fund.
Robin Simmons, partner at Sackers, who advised the trustee of the Royal Mail Pension Plan on its move from final salary to career average benefit provision, said the main driver for these decisions was controlling cost.
But there remained a challenge to explain the decision to members, he added.
“The communication strategy should not only explain what it means, but also provide comparisons," he said. “The most important thing is to keep things simple.”
Clear communication crucial
Shifting from final salary to career average is a big decision and should be planned carefully, said Darren Philp, director of policy at the National Association of Pension Funds (NAPF).
Many employees have a very poor understanding about their own pension, because “pensions are by their nature quite complicated”, so the clear communication is absolutely vital, he said.
Poor communications with staff can create opposition when there need not be any
“Poor communications with staff can create opposition when there need not be any, simply because people do not understand what is being offered.”
Rising longevity and the relatively high cost of the final salary scheme means more change is on the way.
According to the recent NAPF survey, among those pension schemes that were closed to new staff but still open to existing members, 11% said they will keep the existing DB structure, but will make it less generous.
“This usually means changing accrual rates or moving to a career average model,” said Philp.
How unions can help
Though there have been a number of stand-offs between unions and companies over the pension reforms, trade unions have no particular objection to career average, said Nigel Stanley, head of campaigns and communications at the Trades Union Congress.
He said: “Unions have been partners in helping secure the sustainability of many pension schemes.” A shift from one scheme to another is usually part of a wider package of cost reduction within a scheme, he added.
“Inevitably those losing from both the change in scheme design and cost-cutting are going to be upset," he said.
“Indeed there are arguments in their favour as, for example, they can stop the abuse of bumping up the final salary of top managers in their final year to boost their pension income.”
