Members of the Royal Opera House orchestra have voted in favour of taking a lower pay rise to fund an improved pension scheme for new and future members, a decision that has struck a chord with experts.
The move could be seen as a positive example of intergenerational fairness in an economy often described as heavily skewed towards baby boomers and against millennials. Restoring this balance has become topical in the pensions industry and beyond.
It’s encouraging to see that people are thinking about the younger generation and how they can afford pension saving
Tim Middleton, PMI
In November last year, the Work and Pensions Committee launched an inquiry into the problem, while the Intergenerational Foundation has highlighted that companies put aside, on average, £7bn a year in future service contributions for defined benefit, compared with £1.7bn annually for defined contribution, which most younger members tend to be in.
AE duty led to reduced pension offer
In 2013, the Royal Opera House told the Musicians’ Union and other unions that a new pension scheme would be introduced for new joiners after September 1 2013 due to auto-enrolment.
This would offer a reduced pension package for all new staff, including musicians, to deal with the increased cost of pension contributions across the organisation, according to Naomi Pohl, assistant general secretary at the MU.
There are about 100 musicians employed at the ROH orchestra, and roughly 95 per cent of them are MU members, Pohl said.
The orchestra wanted to redress the balance between existing orchestra members and musicians joining the orchestra post auto-enrolment.
Pohl explained that one orchestra member carried out some “very detailed planning” and calculations “to come up with a scheme that could be funded by the orchestra taking a lesser pay rise”.
Orchestra members overwhelmingly in favour
In 2015, members of the ROH orchestra accepted a two-year pay deal of 2 per cent for 2014-15 and 2 per cent for 2015-16.
Two years later, in March 2017, members voted in favour of helping to fund an improved pension scheme themselves by taking a 0.5 per cent lower pay rise than other ROH staff.
It was calculated that this saving year on year would enable the ROH to boost pension contributions for new members from a maximum of 4 per cent to 8.5 per cent. The 0.5 per cent decrease to pay rises will fund the improved pension for roughly 30 years.
She said: “We balloted MU members in the orchestra in March 2017 and the deal was approved.” The ballot result was overwhelmingly in favour of compromising on pay to improve pension provision for new and future colleagues.
“We were delighted that the orchestra voted in favour of taking a lesser pay increase” to benefit colleagues, said Pohl.
“We put that to the management,” she said. “The opera house… agreed to our proposal.”
The Royal Opera House’s chief executive, Alex Beard, said: “We were happy to accede to their request that pension contributions for more junior members of the orchestra be prioritised within the available sum.”
AE hike could prompt more innovation
Tim Middleton, technical consultant at the Pensions Management Institute, noted there has been a long-running discussion about the affordability of auto-enrolment for employers and increasing contributions.
This is “certainly going to bite from next April when the first phasing increase occurs”, he said.
As a result, “innovative solutions, rather like the one that we’ve seen at the Royal Opera House, might become more common”, Middleton suggested.
Willetts: Narrow green paper fails on intergenerational equality
Earlier this year, Conservative peer Lord Willetts spoke out against the scope of the government’s green paper consultation on defined benefit pensions, criticising its lack of regard for intergenerational fairness.
“It’s encouraging to see that people are thinking about the younger generation and how they can afford pension saving,” he said. “It’s also encouraging to see that there’s an awareness of the importance of pension saving.”
Janet Brown, a partner at law firm Sackers, said the decision was a “really fascinating” development.
“Unions tend to be more focused these days on DB because that’s where the bulk of their members are… but actually the challenge for all of us is making DC work,” she said.
Stephen Scholefield, partner at law firm Pinsent Masons, said the agreement showed the power of engagement: “This is a fantastic example of the positive changes that can occur where employees actively engage with their pension savings.”
Pension disparity within a workforce is something employers should also take an interest in avoiding, said Scholefield.
“Employers should not shy away from looking to harmonise pension contributions across the workforce for the benefit of all concerned.”
