Please note that the information in this newsletter does not and is not intended to constitute advice of any nature, whether legal, financial or otherwise. The information is provided in good faith but UNITE does not accept liability for any errors or for the accuracy of the content of this document. You should verify with the pension department any information or assumptions relating to your pension, and seek professional advice as appropriate.
The government’s announcement that it intended to change the way defined benefit pensions are index linked from being based on the Retail Price Index (RPI) to the Consumer Price Index (CPI) cause major concern amongst members of the ICL DB Pension Plan. Because CPI is generally significantly lower than RPI, this would dramatically reduce the value of those pension schemes that were affected.
The recent announcement from the ICL Pension trustees was therefore welcome news, with the headlines:
As usual, the detail is a little bit more complicated, as they go on to explain. While they expect no impact at all to our pensions before we start drawing them, the trustees do expect a small impact on our pensions in retirement. The trustees do expect the change in indexation to apply to the Guaranteed Minimum Pension (GMP) once you start drawing your pension. The GMP is the equivalent of the pension you would have earned from the State Earnings Related Pension Scheme (SERPS) prior to 6 April 1997, had the plan not been contracted out of SERPS. So to summarise, the change in indexation only applies after you start drawing your pension, and only to a relatively small part of the pension you earned prior to 1997.
The other piece of good news on the indexation front is that the government has announced that it does not intend to introduce legislation to over-ride pension scheme rules, backtracking on its original announcement. Well done to all those members who wrote and lobbied their MPs on this.
The effect of the government’s attack on pensions was the single biggest question mark hanging over the closure of the ICL DB Pension Plan. While many other pension schemes may still be badly affected, ICL DB members are fortunate that our own legal position appears better.
With this issue resolved, it now seems highly unlikely that there will be any major change to the company’s proposal, though UNITE is still working to get the loose ends tied up (see below).
The less good (and less comprehensible) news in the same announcement related to Early Retirement Factors (ERF). In the past, the ICL DB Pension Plan used an ERF of 3% per year, meaning that if you started drawing your pension N years before your Normal Pension Date, your pension would be reduced by N x 3%. In many circumstances, your pension could now be reduced by far more.
Since April, ICL DB members have been able to draw their pension from the age of 50 if they still work for Fujitsu, or 55 if they no longer work for the company.
The right (at the appropriate age) to draw your pension early with an ERF of 3% remains an absolute right if you start drawing it immediately at the time you leave employment with the company.
Drawing your pension early while you still work for Fujitsu, or some time after leaving, is at the discretion of the trustee. In the past, they applied the same ERF of 3%. Now, the trustees have decided that they will only allow you draw your pension early in these circumstances if it is subject to a “cost-neutral” ERF which will be “at least” 3% and in reality is likely to be considerably higher.
[UPDATE: since this newsletter was produced, UNITE sought further clarification from the trustees via the company on the circumstances where different ERFs would apply]
This seems likely to have several consequences for members:
- Smaller pensions for many
- People aged 50+ who are leaving the company are more likely to decide to draw their pension immediately
- People aged 55+ who want to draw their pension are more likely to decide to leave the company
Of course, if you draw your pension at or after your Normal Pension Date, the Early Retirement Factor doesn’t apply at all.
Around 770 people had still not signed up to the change by the 1st December, despite a large volume of scaremongering communication from the company. This has been very important in keeping the pressure on the company to resolve the remaining issues. And indeed there has been progress, though there are still issues where further progress needs to be made:
If the financial position for you was equal, you might well choose not to accept the change until late in the day, to keep the pressure on the company. However, there is likely to be a marginal financial advantage to many members in accepting the change early or late, depending on their circumstances. Now there is far less uncertainty relating to the RPI/CPI issue, it’s more possible to assess this. To help you make your decision, here are some factors you might want to consider:
|Some reasons to change late||Some reasons to change early|
|Keep the pressure on the company to resolve outstanding issues||–|
|Continue accruing DB pension||Start accruing in FJUK|
|Continue contributing to AVCs to provide a cash lump sum on retirement||Start receiving “recompense” (either as cash or extra FJUK contribution)|
|Increase your ICL DB Final Pensionable Pay due to higher salary over the last 12 months before leaving the plan||Effective increase to your Final Pensionable Pay due to revaluation (index-linking) after you leave the plan.
Note that this is a complex calculation, most of which is based on whole years after going deferred, but parts of which can be based on whole tax years or whole months.
If and when you do accept the change, don’t forget that the company hasn’t implemented its commitment to make the 5%/10% contribution rate the default, but instead used the 3%/6% one. Overlooking this would radically reduce your future pension, while saving the company 4% of your salary.
When you come to make your decisions, you may well want to get some Independent Financial Advice. UNITE had asked the company to fund such advice, but they refused. However, Fujitsu’s Employee Assistance Programme (EAP) will provide Independent Financial Advice free to you (i.e. Fujitsu is paying). Of course, whether you want to use that or find your own is entirely up to you.