Union considers AA scheme closure ‘significant attack’ on members

Much of the scheme, which is comprised of five sections, was already closed to future accrual, with only the career average revalued earnings category remaining open. Following consultation, which took place in the 60 days leading up to March 18, the decision was taken to close that section as well.

The move will reduce pension cash costs by £4m a year, according to the AA’s 2020 results statement, and “protects against the ongoing build-up of DB risk for the group”. 

In a bid to ease member concerns aired during the consultation, the closure of the AA’s DB scheme goes in tandem with enhancements to be made to its defined contribution plan, which will cost an estimated £11m over the next three years.

The company’s own figures show that some retirees can expect to collect a pension of almost 50 per cent less than they would have seen under the DB scheme

Andy Prendergast, GMB

Union ‘extremely disappointed’ with AA

Not all stakeholders are happy about the move, however. The GMB union, which warned that its members faced a retirement “nightmare” when the consultation began, responded angrily to the news.

Speaking to Pensions Expert, GMB senior organiser Andy Prendergast called the move a “significant attack” on member benefits.

“GMB members overwhelmingly rejected the proposals to end the DB scheme, and we are extremely disappointed that the company has decided to continue with this process,” he said.

“This is simply the latest in a long round of cuts to staff terms and conditions that have occurred since the company was sold off to private equity and saddled with unnecessary, and we believe unmanageable, debt."

AA was acquired by private equity houses CVC and Permira in 2004, and floated in an initial public offering ten years later. However, the company is still aggressively financed with a net debt ratio of 7.6 times its trading Ebitda according to its latest results, down slightly from 8.0x in 2019. "We recognise the challenges posed by our level of indebtedness and the need to reduce this significantly," the company stated in results announced in May.

DC represents a cut

The company has taken some steps to reduce the risk to which its pension members are exposed, paying in £26m to its DB scheme in the year to March 31. A triennial valuation of the scheme allowed savings of £6m per annum to be made after the deficit shrank by 64 per cent.

The scheme, roughly 95 per cent funded against technical provisions, has also purchased buy-in policies covering around one-fifth of its longevity risk, and now hedges the majority of its exposure to interest rates and inflation.

Mr Prendergast said the union's unhappiness with the closure stems from the significantly less generous DC arrangement being offered as a replacement.

“These cuts to the scheme represent a significant attack on members’ benefits, with the company’s own figures showing that some retirees can expect to collect a pension of almost 50 per cent less than they would have seen under the DB scheme," he said, adding that the move demonstrates "disregard for the staff whose work ultimately creates the profits”. 

An AA spokesperson said: “The GMB is not the recognised union of the AA and their claims are inaccurate and anachronistic."*

The spokesperson said that accrued benefits will be fully protected, and said the move was in line by the widespread closure of DB schemes by "responsible" companies in the FTSE 250.

“We briefed our 7,500 employees and are our recognised trade union, the IDU, and our Management Forum who represent management employees. Some 2,800 employees out of 7,500 are in the defined benefit scheme. The change did not affect any employee who joined after 1 October 2016 who were already in one of our defined contribution schemes,” they added.

*Due to an editorial oversight, an earlier version of this story omitted an AA spokesperson's response to the GMB claims.