The General Medical Council is set to close its defined benefit scheme to future accrual from April 1 2018, and is in talks with the trustees regarding additional funding.
The trend towards DB scheme closures is continuing unabated: 39 per cent of schemes are closed to accrual according to the Pension Protection Fund, despite the aggregate funding level improving to 90.5 per cent on a PPF basis.
BT and the Universities Superannuation Scheme are among recent high profile closures, with academics still on strike over the proposed move.
The GMC, an independent organisation set up to protect patients and improve medical education and practice, had switched its final salary scheme to a career average revalued earnings structure in January last year.
Our current plan is for our defined benefit scheme to close to future accrual from 1 April 2018
GMC spokesperson
However, the GMC subsequently agreed that it wished to close the circa £213.6m DB scheme to future accrual and move to an enhanced version of the existing defined contribution scheme for all staff.
A 60-day consultation began in September 2017 to explain the impact of the proposals on scheme members. The council ran 40 staff engagement sessions, including online sessions for remote staff and homeworkers.
It also offered one-to-one discussions with all DB members and provided a personal illustration of the proposed changes for each scheme member.
Liabilities have 'increased enormously'
Documents from a council meeting in December show that three of the main consultation themes were the cost of future benefits, increased risks and fairness.
Despite changes made to increase the contributions made by the GMC and the move to a Care structure, “the forecast liabilities of the scheme have still increased enormously”, meaning that the effective costs of the DB scheme to the GMC were around 30 per cent of salary for members of the DB scheme, compared with employer contributions of 12 per cent for members of the DC scheme.
“Our current plan is for our defined benefit scheme to close to future accrual from 1 April 2018,” said a GMC spokesperson.
The consultation also covered the future design of the DC scheme, including the enhancement of additional employee contributions by 10 per cent, and the potential option of allowing some pension benefit to be exchanged for salary.
Talks over additional funding continue
The council acknowledged that the closure of the scheme to future accrual makes it easier to plan for achieving self-sufficiency. According to the meeting documents, “trustees have set out proposals and are asking Council to consider making additional payments into the scheme of £2m per year”.
The council’s advisers are supportive of further additional payments being considered ahead of the next actuarial valuation, but at a lower level of £1m and for 2018 and 2019 with any payments handled through the next valuation, due to commence at the end of this year.
The council will be considering this next week, and there could then be further discussions, the spokesperson said.
Caroline Legg, partner at law firm Sackers, said the role of the trustees is to act in the best interests of members, “and so they’re taking the opportunity… to ask for extra funding”.
During this kind of process, “they’re not there to negotiate on behalf of the employees, that’s the role of the employee representatives and the unions”. The trustees’ role is to look at the impact the closure is going to have on the scheme, she said.
Raymonde Nathan, regional director at JLT Employee Benefits, said that “the trustee’s primary duty is to secure any benefits that have already been earnt, and delivering the benefits that have been promised in the future”, so they do not have a direct responsibility in the discussions about what benefits an employer is going to offer.
Ask the right questions
However, Nathan noted that they do have a legitimate interest in asking the employer whether they have thought about all the different options that are available, and whether they have taken into account all the members’ interests.
Ultimately, “although they do have a nuclear option in there in that they can refuse to accept the change, because usually these things would require a deed or something like that… usually they would not get to that stage [of] exercising that, as long as they’ve asked the right questions”, Nathan said.
University of Oxford learns hard lesson with Care closure
The University of Oxford has introduced a defined contribution scheme for new joiners and is making a number of other changes to reduce costs as universities are waking up to their pension deficits. One expert called the education sector ‘a disaster’ in pension terms.
A number of GMC DB members did not agree that the current arrangements were unsustainable, and that further reform in such a short space of time was unnecessarily hasty, given that the scheme had switched to Care in January last year.
Some employers wishing to limit their pension liabilities might have too much push-back from employees and unions to switch to DC, and end up keeping a DB element by moving to a Care structure.
However, Nathan said that it is “far more common” to make the move straight to DC.
Similarly, Legg noted that “Care is still essentially a defined benefit” and “it doesn’t really eliminate the risks that employers are looking to eliminate”, as, while it limits the rate at which pensions will accrue, the employer is still responsible for providing and funding the benefit.
