Saul avoids member backlash in switch to Care

As of the beginning of July, all new members of Saul entered the newly launched career-average revalued earnings scheme rather than the final salary section.

The relatively smooth transition was in contrast to that of Unilever and local government schemes, which have agreed on similar moves in the face of industrial action.

Kim Brooks, deputy chief executive and head of benefits at Saul, advised other schemes considering the move to “plan ahead [and] ensure communication channels are open and flexible”.

She added: “Ensure there is always room to manoeuvre on both sides before reaching a conclusion.”

Final salary schemes are increasingly looking at ways of sharing risk with members, and career-average arrangements provide a way of making defined benefit schemes sustainable over the long term.

But transitions need to be carefully managed as members can often feel they are missing out on a higher income in retirement.

Saul’s consultation

The £1.5bn Saul scheme has 10,000 active members, 13,000 deferred members and 7,800 pensioners.

On July 1 it launched a Care plan to sit alongside its final salary section. New members will be enrolled into the Care plan, but existing members will continue to build up benefits in the final salary section.

This was not so much about a specific cost saving, but about finding ways to ensure the scheme could offer a contribution rate that is sustainable and stable

Kim Brooks, Saul

Brooks explained the main challenges involved in launching the new section: “[These were] reaching a suitable solution that all interested parties were happy to sign up to, and then communicating that message to the membership.”

Saul carried out an extensive consultation on the changes between January and March this year, with the scheme’s sponsors seeking the views of every active member.

The scheme received feedback from 214 people who filled out an online form, and 36 through trade unions.

The final proposals were agreed at a meeting in March attended by Saul trustees, where all the responses to the consultation were considered.

Under the new structure, all members’ contributions will remain at 6 per cent of salary.

“This change was not so much about what specific cost saving could be made, but about finding ways to ensure the scheme could offer an employer and employee contribution rate that is sustainable and stable,” added Brooks.

Troubles at other schemes

The Unilever UK Pension Fund also made changes to its defined benefit structure on July 1.

For most workers, it is not a choice between final salary and Care, but between Care and pure defined contribution

Alan Pickering, Plumbing Pensions

But unlike Saul, the £4.3bn scheme closed its final salary plan to future accrual and switched all active members to the career-average section, leaving them with a greater share of risk.

This followed months of bitter negotiations with unions and saw the first national strikes by Unilever employees in the company’s history.

Representatives of the pension scheme declined to comment on the change.

But Alan Pickering, chairman of the Plumbing and Mechanical Services Industry Pension Scheme and of independent trustee firm Bestrustees, said member dissatisfaction could be limited if the benefits of career average schemes were clearly explained.

“For most workers, it is not a choice between final salary and Care, but between Care and pure defined contribution,” he said.

“Care is a fairer share of risk between the workers and the employer. The employer can see what they are letting themselves in for and can manage the costs more effectively than they can in a final salary arrangement.”

The plumbing pension scheme has had a career average structure since it was launched in 1975.

The scheme was designed to better reflect the lifetime earnings experience of plumbers, whose level of pay tends to flatten out early in their career compared with other professions.

Pickering said the trustees were using the 2012 triennial valuation to see how the scheme would work in an auto-enrolment framework.

The current combined employer-employee contribution rate is 11.5 per cent. Under auto-enrolment, the minimum requirement is 8 per cent.

Over the past year there have been national public sector strikes over a switch in the local government scheme from final salary to career average benefits.

But one scheme that managed to attract 8,000 members into its Care plan was the BBC, as reported by schemeXpert.com in January.

At the time, Robin Simmons, partner at Sackers, said the most important element of a successful transition was to keep communications simple.

“The communications strategy should not only explain what it means, but also provide comparisons,” added Simmons, who advised the trustees of the Royal Mail Pension Plan on its move from final salary to career average benefit provision.