Workers at engineering company Bombardier are considering industrial action over employer plans to pass on the cost of contracting-out cessation to members of two of its defined benefit schemes, while sharing the cost for the Railways Pension Scheme.
Last month, the Royal Bank of Scotland announced plans to pass on the £18m cost increase from contracting-out cessation to its members, a move described byAnne-Marie Winton, partner at law firm ARC Pensions Law, as unsurprising.
A small number of pension schemes, including the RPS, have legislative limits on changes to the scheme rules an employer can make. These schemes are from formerly nationalised industries such as rail, coal and nuclear decommissioning.
For the rest of their employees who are still in the DB schemes they’re saying no
Kevin Hepworth, Unite
As part of the end of contracting-out, the government introduced a statutory override power allowing sponsoring employers to amend their schemes to take into account the increased cost from additional national insurance contributions.
However, in February 2014 the government announced that this power would not extend to protected schemes.
The consultation response said: “The government thinks it is important to stand by the promises made to former state workers at the time of privatisation… employers should not be allowed to use the statutory override to alter the pension schemes in relation to members with protected person status.”
Kevin Hepworth, regional officer for the Unite union, said: “They’ll honour it for that, but then for the rest of their employees who are still in the DB schemes they’re saying 'No' because of the finances of the parent company.”
He added that the cost of the end of contracting-out was split between the employers and members for the RPS scheme, but members of Bombardier’s UK DB schemes would bear the cost of the employer’s increased contributions too.
Unite stated the move will lead to an £830 annual cost to members of the unprotected schemes, adding that this is made up of a £500 employer contribution increase and £330 employee increase. 1,700 members will be affected.
Bombardier declined to comment while discussions are ongoing.
Winton said around 60,000 workers were in protected schemes in the UK.
“It’s a legitimate carve-out. It’s right these people maintain these protections, but it does probably look weird to those [who are not protected].”
Bearing costs, for now
Fuat Sami, partner at law firm Sackers, said many employers were choosing simply to absorb the costs of the end of contracting-out themselves.
However, he added that pension scheme members who had not seen their costs go up are not free and clear.
“That’s not a permanent decision because they could at any point in the next five years exercise their choice to pass the cost on to the member,” he said. “The statutory override is something they can use for up to five years.”
