Enterprise Bill

Written evidence submitted by William Weir (ENT 14)

For scrutiny by the Committee on exit payment clause contained within the Enterprise Bill

I am writing on behalf of the Trustee of the Magnox Group of the Electricity Supply Pension Scheme ("the Scheme").  The Scheme is a sectionalised industry-wide scheme and a "Group" is a particular employer’s section within the Scheme.  The Scheme provides predominantly final salary benefits.

The nature of the employer’s business is to decommission the UK’s Magnox nuclear power stations and the number of employees has, and will continue, to decline as each power station moves towards closure. We understand that Magnox Ltd, which is the Principal Employer for its Group within the Scheme, is currently within the scope of the proposals.

Whilst most of the consultation will be a matter for the Principal Employer, there are some pensions-related points which are causing concern for the Trustee.

The Magnox Group provides pension based on an eightieth accrual rate plus a cash lump sum at retirement of 3 times pension.  This is the standard benefit structure of the Scheme.

Also part of the standard benefit structure of the Scheme is a provision that, where retirement is as a consequence of redundancy or reorganisation, the pension shall be paid from age 50 (or date of leaving service if later) on an unreduced basis. It is not an option or a choice for the Trustee or employer, but a member’s right under the rules and has been so since the Scheme’s establishment in 1983, having been a feature of the electricity supply industry’s predecessor Staff Superannuation Scheme since the 1950s This provision also covers individuals who are under age 50 when made redundant.  Thus a member made redundant at (say) 45 is entitled to their pension (unreduced) at age 50 and therefore the suggestion of unfairness to younger members ("…someone with long service who has not reached the age required to take an early pension") in the consultation document does not apply in the Scheme.  

For completeness, I should mention that the Magnox Group removed this standard provision for new joiners in 2003, but a significant number of our members joined before then and are entitled to the Scheme’s standard redundancy/reorganisation provision.  This letter is concerned only with the pre-2003 joiners.  

Currently, the funding arrangements adopted by the Trustee do not pre-fund this entitlement. Instead, the employer makes a payment to the Scheme on each occasion that a member retires under this rule. This additional payment reflects the additional cost to the Scheme of "early" payment and is required to keep the funding of the Magnox Group of the Scheme in balance.

A high proportion of our members are long serving employees who have already accumulated significant accrued rights.  Consequently the payments required when a pension is paid "early" on redundancy can be substantial, often exceeding £95,000.

We note from the consultation document that "These changes will have no effect on individuals’ accrued pension rights."

The Trustee is therefore concerned to understand the practical application of the proposals in relation to the very specific circumstances of the Scheme.

In cases where a member leaves as a result of redundancy, for whom the additional payment required exceeds £95,000, presumably the Trustee cannot restrict the benefit proportionately as this would result in a diminution of the accrued rights under the Scheme rules.

If however the full pension is paid (as required by the Scheme rules), but the additional payment was restricted to £95,000 it would immediately weaken the security of benefits for the remaining members and ultimately this shortfall would be revealed in the form of a deficit at the next actuarial valuation which would need to be made good by the employer.

There is a further complication applicable to members of the Scheme.  Those members who were included in the Scheme at 31st March 1990 have additional protection from the Electricity Act 1989 and the Electricity (Protected Persons) (England and Wales) Pension Regulations 1990. This legislation provides protection to both accrued and future service rights, including a provision (which is also reflected in the Scheme’s power of amendment) that those rights cannot be reduced unless agreed to by at least two-thirds of affected members who vote at a members’ meeting specifically convened for that purpose.  You will be aware that recent legislation, allowing employers to reduce members’ benefits to reflect the increased employer costs of the abolition of contracting-out next April, is dis-applied in relation to members of the Scheme who enjoy "Protected Persons" status.

This requires clarification as it clearly contravenes what has already been laid down in parliament before by previous Governments.

February 2016

 

Prepared 11th February 2016