FirstGroup changed the basis for its calculation of pensionable pay last year to comply with auto-enrolment legislation, but the nationwide shift has disproportionately impacted the benefits of First Aberdeen bus drivers.
The British transport group continues to offer defined benefit accrual to around 5,000 employees in the UK after making a series of changes to the benefit structure across its DB and defined contribution offerings last year.
In the scheme’s Gold and Silver DB sections, member contribution increased from 7.5 per cent to 11.25 per cent and 5.5 per cent to 8.25 per cent respectively.
During consultations with trade unions and employees on changes to the scheme, members were informed that pension contributions in DB and DC sections would need to be based on basic pay in order to comply with auto-enrolment legislation.
When you talk about replacement income you [base] that on your total income
Damian Stancombe, Barnett Waddingham
Differing pay structures
The UK-wide change has had a significant impact on the pension contributions of First Aberdeen bus drivers who, unlike other First depots across the country, do not have a consolidated pay packet.
Graham Gavin, First Aberdeen driver and branch chair for trade union Unite, said the contractual pay of bus drivers in Aberdeen is not “consolidated” and structured on a basic salary and a weekly supplement of a “one-man-operator bonus” and “shift-allowance bonus”.
Pension contributions into both DB and DC arrangements were previously based on drivers’ contractual pay, which included weekly bonus supplements.
Both employer and employee contributions in DB and DC arrangements are now calculated on basic salary rather than contractual pay.
Gavin said that in his case, the portion of pay which is pensionable has fallen by £7,000 following the change, with total weekly contributions dropping to £34 from £51.
“That’s a significant cut by anyone’s standards,” he said.
The shift also impacts the calculation of death-in-service benefits set at four times the previous year’s pensionable pay.
Gavin said: “We haven’t ruled out industrial action. However, we are open to negotiation with management – we are giving them every opportunity.”
A spokesperson from FirstGroup said: “We are proud of our award-winning pension scheme and the benefits that it offers, and we had extensive discussions with union representatives and consulted thoroughly with employees about these pension changes.
“We enjoy good working relations with the local Aberdeen union representatives and will engage with them to respond to their concerns.”
Pension contributions not based on total earnings
Damian Stancombe, partner and head of workplace health and wealth at consultancy Barnett Waddingham, said auto-enrolment legislation is likely to clash with practices in historically unionised or pseudo-public sector workplace schemes.
He said that auto-enrolment legislation has added a layer of complexity to the entire market, particularly for sponsors and members trying to assess income replacement ratios.
“In the world we live in now, how many people just live on their basic salary?” he asked. “Whichever way we look at it – the way people spend in their lives and spend their earnings – it’s based on total earnings. When you talk about replacement income you [base] that on your total income.”
Stancombe added that members saving into auto-enrolment and DC vehicles across the country may be “painfully oblivious” to the fact that pension contributions are not based on their total earnings.
