Wind-up: avoiding union and member backlash

Forcing the closure of schemes without proper consultation, or putting members into a defined contribution scheme where the benefits are not as generous can lead to member dissatisfaction, an exodus from workplace saving or, in some cases, industrial action.

But there are ways schemes can prevent these outcomes, save on costs and engage members. Heineken secured a 94 per cent take-up rate for its new DC scheme after the DB scheme closed in 2011.

And trade unions have set out exactly what schemes can do to follow Heineken’s example, run consultations smoothly and effectively, or indeed to keep DB schemes open.

How Heineken won members’ support

The biggest beer manufacturer in the UK staved off an “explosive situation” when it closed its DB scheme in favour of a contract-based DC arrangement, said Janis Ireland, pensions governance and operation manager, at the National Association of Pension Funds’ DC conference last month.

“Prior to the introduction, a lot of thought went into the communications,” said Ireland. “It didn’t start two months before the launch, it started 18 months before, when we actually started engaging with the employee workforce and the employee council on the communication and the design of the scheme.”

The communications campaign included online updates, CDs for members who work in the brewing factories, and a retirement planner tool.

The scheme followed the NAPFs’ Pension Quality Mark guide to good communications and, Ireland said, benefited from Heineken’s in-house communications team.

People were saying for the first time they understood pensions

“It’s amazing how changing a sentence around, by a non-pensions expert, can make a huge amount of difference,” she added.

Ireland told delegates Heineken addresses members as “colleagues” to try to personalise communications, and advises schemes to make correspondence clear, jargon-free and accurate, as well as asking for feedback.

“There was some positive feedback – people were saying for the first time they understood about pensions,” she said.

Fifty out of 2,100 members decided not to join the new DC scheme, which Ireland said was as they were close to retirement, while “only” 52 colleagues defaulted to the balanced lifestyle option, with the remainder taking an active investment decision.

The scheme is now planning for auto-enrolment and has a DC governance committee and two representatives – one independent and one member-nominated.

Unions have said there are steps any scheme can take to make sure members are well informed about any changes, promote DC uptake, and to keep unions on side to minimise the threat of strike action, which can be costly and damaging to a company’s reputation.

Managers can talk to members prior to an official consultation, adopt methods during the consultation, consider options to keep their DB scheme alive and also convince members of the DC scheme benefits.

Does the DB scheme really have to close?

A major sticking point for employee representatives is if they think the DB scheme could have stayed open, meaning members are being put into inferior pension arrangements without proper justification.

Glyn Jenkins, head of pensions at Unison, says: “Putting an active workforce into an inferior pension arrangement, I think, has serious implications.”

He says “quite a lot” of the DB schemes Unison looks at could carry on and he advises schemes to look at the actuarial assumptions and long-term costs of the scheme, considering the bond market.

“Are the assumptions realistic, are they over-prudent, are they simply destroying the scheme?” he says.

To keep a scheme viable, trustees can try to make sure it contains a range of demographics, encourage younger people to join and remove any bars to them doing so.

Jenkins says he considers trustees have failed if they reach the negotiations stage – as it signifies they haven’t planned properly for different financial scenarios.

“Obviously it is part of the duties of trustees to ensure the sustainability of the scheme, and if the employer suddenly has a problem with their business, they simply can’t use the pension scheme as a commercial football,” he says.

Start talking before consulting

Trustees might feel under pressure from their sponsors to accept changes to the scheme, and that they have to communicate changes in a tight timeframe.

But schemes would do well to inform members and unions at the first stage a problem is apparent, says Bryan Freake, pensions officer at Unite.

He says he would prefer schemes to communicate initially rather than when they had found a solution, so the union could be satisfied of a genuine need for change and have the opportunity to influence the proposals put in for a formal consultation.

“We have had situations where we have been able to get the employer to improve the proposals in some way or other, before they go out to consultation.

“Then when they get into consultation we are ready to deal with it, to deal with members, and we find we are more likely to get a better outcome,” he says.

Schemes can either carry out a pre-consultation, or extend the consultation period, giving unions and members a chance to respond and to factor in any changes as they consult.

When the scheme does run a consultation with members, there are also ways to minimise the likelihood of industrial action.

Craig Berry, pensions policy officer at Trades Union Congress, says schemes should open up a “genuine dialogue” between employers, trustees and members.

He says the employer should show “willingness to compromise” in the event of strong feelings among members.

“Negotiations should rely on evidence about what hardship scheme changes may cause, [the employer and scheme] will need to take on board that evidence,” he says.

Ensuring the cost implications of any changes are transparent, and showing an understanding of the socio-demographic characteristics of the workforce and how changes will affect different members can also help.

Berry says: “There is no magic wand I can wave about this issue. The engagement needs to be as early on as possible and as extensive as possible.”

Inevitably, some changes to DB scheme arrangements will need to be made in the course of many trustees’ tenures, to help companies keep afloat.

But by looking at options to keep the DB scheme going, starting a dialogue with unions and members as soon as any trouble is detected, and by tailoring communications, perhaps schemes can keep unions on side and even enjoy as high an engagement rate as Heineken.