British Steel Pensions
Many of you will have seen commentary in the press about steelworkers' pensions, and how they may be affected in a bid to find a suitable buyer. The government has published a consultation document, which is worth reading, here.
The consultation is aimed at "...those who live or work in Port Talbot or in steel making communities across the UK, work for Tata Steel UK, in the British steel industry more generally or are members of the scheme.
In addition, we welcome comments from those who are connected with occupational pension schemes or employers paying the Pension Protection Fund levy for schemes that they sponsor, and anyone with a general interest in pensions"
The ABAP committee think the main issues for us BA Pensioners are the following:
The BSP scheme is a very large one: 130,000 members: 14,000 are active, 32,000 deferred, 84,000 pensioners.
Tata Steel UK (most but not all of the former British Steel) want to sell. They say they can only sell if the pension scheme is separated (no one would want to buy it otherwise).
BSPS is underfunded (though not greatly so, looking at the figures) and the most likely outcome is that BSPS enters the Pension Protection Fund (PPF). “the scheme has assets of £13.3 billion and liabilities based on running on with a solvent sponsoring employer of around £14 billion, so has a deficit estimated at around £700 million on a technical provisions basis. However, the scheme is around £1.5 billion short of what would be needed to buy out benefits equivalent to Pension Protection Fund compensation levels (this is known as a section 179 basis in pensions legislation). The deficit to buy out the benefits in full is estimated to be around £7.5 billion.”
For those subject to the PPF cap (i.e. all those under normal pension age), the 2016 cap means that the maximum compensation that can be paid is £33,678 annually “We estimate that 776 members of the BSPS would be affected by the current PPF cap. Of these, 665 people (85 per cent) have more than 20 years’ service so would benefit from the introduction of the long service cap. Compensation is based on 100 per cent of the accrued pension in payment to all those who are over their scheme’s normal pension age at the date of the employer’s insolvency (or to members under normal pension age who retired on ill-heath grounds). All other scheme members are paid compensation based on 90 per cent of the accrued pension, subject to the cap.
Option 3 proposal is “Reduction of the Scheme’s Liabilities Through Legislation” This argues for reduction in current liabilities (eg lower inflation awards) but resulting in BSPS avoiding PPF and most pensioners getting a better deal than if PPF is entered. This would be one-off legislation for the BSPS. . “We are not, therefore, considering extending the proposal beyond the BSPS as a specific scheme”. So most pensioners would be better off than on PPF, some the same, unclear if any worse off (those on VPO equivalent would be worse off if not on PPF, see next paragraph).
“Because of the way PPF compensation payments are calculated, if the scheme were to enter the PPF those members who have chosen to receive a high/low pension and are under their State Pension Age would receive a compensation payment equal to the higher pre-State Pension Age amount for the remainder of their lifetime. They would not see an application of the deduction once they reached the State Pension Age. By contrast, if the scheme was to stay out of the PPF, these members would currently see their pension payments reduced by £5,408 a year once they reached State Pension Age.” We think high/low pension is their VPO option, so it looks like entering PPF is better if on VPO as the company pension reduction on reaching SPA is not applied. Are these the only pensioners who lose if they are put on a reduced-benefits scheme instead of entering PPF?
The new scheme would have to be imposed by legislation as size of scheme makes it impossible for individual consultation.
ABAP intends to submit the following, probably edited to fit the set questions. We welcome any feedback on this view by close Wed 22 June to firstname.lastname@example.org
"As far as BA Pensioners’ interests are concerned, ABAP would not want any precedence set. Getting agreement on a modified scheme, albeit usually better for BSPS pensioners than PPF would give, will set a precedent. A slight possibility we must then consider is that IAG (the owners of BA) could in the future enter financial difficulties and want to modify NAPS and APS (the two defined benefit pension schemes) rules to make them affordable to IAG/BA. If this took place, BA Pensioners would be worse off. The BA schemes could collapse into PPF of course, but the risk to BA Pensioners is that a BSPS modification as proposed could increase the probability of NAPS and APS pensioners having a worse deal in the future than their current deal. We want British Steel Pensioners to continue to have their current benefits. TATA would have known of the pension liability when it bought the former British Steel part of Corus. British or Foreign-owned companies who take over companies with pension liabilities should not later be allowed to walk away from these liabilities. We would welcome a reduced-benefit scheme that was better for BSPS members than the PPF, only if it were not prejudicial to any future arrangements on other Defined Benefit pension schemes; we think however that a precedent would then be set.
ABAP is therefore against any modification to the BSPS to help the chances of TATA selling its UK steel interests. TATA should be encouraged to make the BSPS fully-funded (the gap does not seem massive compared to others) prior to a sale, or, regrettably, put a case for the scheme entering PPF, before selling its UK steel interests."
Unilever pensioners have already submitted a very clear and coherent response: we have added it as a downloadable .pdf file to our website here. For those of us unfamiliar with Unilever pensions, The Committee of Unilever Pensioners (COUP) represents the interests of the members of the Unilever UK Pension Fund. It is totally independent of Unilever plc and the Unilever UK Pension Fund (UUKPF). Much like ABAP.
State Pension Reform & the Guaranteed Minimum Pension (GMP)
As we have written earlier, this topic is complicated, but the effects on individuals' pensions are potentially significant, and it seems that the implications are only now becoming clear to those most affected. We have set up a section on the website with information devoted to the topic. Please click here. There are links to other sites there as well.
Former Staff Healthcare
We have been asked by Nigel Carey of the BA Former Staff Liaison Council to help publicise the recent change in BA's healthcare provider from BUPA to AXA. BA and BA Clubs are now promoting AXA to current staff who attend the pre-retirement courses, as well as to all current and former staff.
Many of you are in the so called ‘group scheme’ for former staff because you transferred immediately, on retirement, from employment cover. If you are one of those people in the ‘group scheme’, you will by now have received a leaflet from BA Clubs promoting AXA. You should pay particular attention to the lower message with the red border, on the right hand side of the information sheet. BUPA renewal is due on the 1st May 2016. You may wish to continue with BUPA alternatively you may want to switch to AXA PPP healthcare.
Follow the instructions to get a quote from AXA PPP by ringing 0800 313 4935 or visit axappphealthcare.co.uk/baclubs/switch. There is more information is on BAclubs.com, and on the BA Touchdown site under Benefits.
Template letter to your MP
In NewsBrief 102 we requested as a matter of urgency that you should write to your MP about how BA misled MPs about the consequence of the APS Trustees returning to the payment of RPI increases by 2023 in linear steps as agreed in the 2012 Triennial Valuation Assumptions, and mentioned the attachment of a template letter...and then did not provide the letter with the NewsBrief! You can find it in MS-Word format here. Please mention it to friends, and if you can download a copy for someone less PC-literate that would help.
NAPS Trustee elections
Dr Jack Wheale has been elected as a Member Nominated Trustee from the Pensioner constituency of NAPS following a ballot. Congratulations to Jack, and thank you to the losing candidates - David Chinn, Duncan Holley and Marilyn Leather for putting themselves forward for an onerous and responsible job.
The Term of Office is for between five and five and a half years and commences on 1st April 2016.
State Pension Reform & GMP
This article should be read carefully if you will not have reached State Pension Age by 5 April 2016. If you are already in receipt of a State Old Age Pension on 5 April 2016, you are not affected.
By now, most of us should be aware that the state pension system is being reformed from April 2016. The current two-tier system with the basic state pension and SERPS (now known as the state second pension) will be replaced by a new simplified single-tier state pension.
At the same time, contracting out for all defined benefit pension schemes ceases, the effect of which for active members of APS & NAPS was outlined in the December newsletter.
From 6th April 1978, employers and employees were permitted to contract-out from SERPS provided their occupational pension scheme met a set of criteria known as Guaranteed Minimum Pension (GMP). This reduced state expenditure on SERPS and the benefit in return was a reduction on employers’ and employees’ National Insurance contributions. This was attractive enough to cause concern about the government being able to process the considerable number of applications in time for the start of the new tax year.
British Airways contracted out APS as it readily met the GMP criteria. Subsequently, when NAPS was introduced in 1984, it too was also contracted out right from day 1. Those of us who currently receive APS or NAPS pensions or who will eventually receive APS or NAPS pensions and reach state pension age on or after 6 April 2016 will have part of their annual BA pension inflation rise reduced. Those who reached state pension age before 6 April 2016 are not affected. Here is a summary of what we think will happen and a few examples.
Being contracted out, APS and NAPS have to guarantee to pay their members a pension from the qualifying GMP age (65 for men, 60 for women) of at least as much as the earnings-related State benefit they would have built up had they not been contracted out. This amount is known as the Guaranteed Minimum Pension. GMP is not in addition to our APS/NAPS pension but included within it.
GMPs cover two periods:
• Pre 88: 6 April 1978 to 5 April 1988
• Post 88: 6 April 1988 to 5 April 1997
If you did not work for BA in these periods, your APS/NAPS Pension is not affected.
For those reaching State Pension Age on or after 6 April 2016, once they reach GMP age, APS/NAPS will no longer be responsible for increasing Pre 88 GMPs, and for Post 88 GMPs APS/NAPS is only responsible for any increases due up to 3% a year.
Under the current State Pension arrangements, from State Pension Age (SPA) the State assesses the earnings related pension that would have applied had the member not been contracted out (referred to as the Additional Component (AC)). When the State pays annual increases, the increases apply to the total AC amount which in effect broadly provides for increases on an amount equivalent to the Pre 88 GMP and any increases over 3% a year on the Post 88 GMP. These increases apply from the state pension age rather than the GMP Age. As SPA can be later than GMP Age, there can already, under current State Pension arrangements, be a period of time during which the GMP portion of an APS/NAPS pension is not receiving equivalent increases from the State.
The introduction of the New State Pension (NSP) from 6th April 2016 removes the concept of contracting out and the AC, and replaces these benefits with a single flat rate State Pension. Consequently, as there will no longer be an earnings related element of the pension, the State will no longer apply annual increases in the manner described above. Future increases will instead be applied by the State to the NSP amount. APS/NAPS will continue to pay increases required by legislation on GMP amounts until GMP Age.
BA Pensions say the Government maintains that most individuals will be better off under the new arrangements: the NSP is higher than the current State Pension and both now will rise with a ‘triple lock’ guarantee (the highest of the CPI increase, the increase in National Average Earnings, or 2.5%). The Government believes that these two elements will, for most members, mitigate the loss caused by the State no longer increasing the relevant amount to one’s GMP.
However, APS/NAPS members reaching State Pension Age shortly after April 2016 will have limited time to build up NSP by paying National Insurance (NI) contributions or securing NI credits. There is an obscure calculation applied that seems to result in many who contracted out receiving a state pension amount equivalent to the old state pension, not the higher new state pension!
This is all very complicated, so here are some real examples.
Persons A, B and C worked for BA over a time period that included the entire Pre88 and Post88 periods (ie 6 April 1978 to 5 April 1997). Their Pre 88 GMPs are £2,938, £2,610 and £1,887 respectively. From 6 April 2016 that amount of their annual APS pension will rise by 0%, not CPI, once they have reached GMP age (this remains 65 for men, 60 for women), for the rest of their lives. Their Post 88 GMPs are £1,885, £2,040 and £1,628 respectively. From 6 April 2016 that amount of their APS pension will rise by CPI capped at 3%, once they have reached GMP age, also for the rest of their lives. Person A is 65 this August. If he lives another 20 years and CPI inflation is always 2% a year, he would lose about 3.6 months’ APS pension due to the GMP effect. If he lives another 20 years and CPI inflation is always 4% a year, he would lose about 9.2 months’ APS pension due to the GMP effect.
Person A and Person B reach state pension age in August 2016 and November 2016 respectively. Both their state pension quotes from the Department of Work and Pensions are at the old (ie current) state pension level, not the new state pension, due to their contracting out.
These 3 examples have good APS pensions. The ABAP committee is more concerned about those on lower APS/NAPS pensions. If their GMP is a higher proportion of their total APS/NAPS pension than our 3 examples, then the GMP effect will be bigger; more months’ pension will be lost than the 3.6 months (2% CPI inflation) or 9.2 months (4% CPI inflation) for Person A.
BA Pensions stresses that the APS/NAPS rules have not been changed. The change has been made by the Government, not the BA Pension Trustees. BA Pensions is liaising with the Pensions and Lifetime Savings Association and the Department of Work and Pensions on this issue.
In summary, if you reach state pension age on or after April 6 2016:
• Your full APS & NAPS pension will increase by whatever annual rises are applied, up to age 65 for men and age 60 for women
• Subsequently, the GMP built up from 6th April 1978 to 5th April 1988 will cease to increase and the GMP built up from 6th April 1988 to 5th April 1997 will increase by a maximum of 3% per year.
• Having been contracted out, BA staff will most likely begin with an entitlement to the foundation rate of the new state pension (currently around £116 per week). Up to state pension age, additional state pension can be earned (up to the full amount, expected to be around £155 per week) by making qualifying National Insurance contributions from any form of UK employment.
While reform aimed at simplifying a complex pension system is welcome, it’s apparent that there are significant losers in the process. Of particular concern is the discriminatory nature of the GMP ages for men and women.
The GMP calculations are complex and members who are affected by this are advised that whilst BA Pensions should be able to give general guidance on what their individual position may be on reaching GMP age, specific personal projections cannot be provided because not all the factors involved in individual calculations will be known. In a low inflation era, the effect of GMP may seem insignificant but as we well know from the RPI vs CPI debate, the effect of compounding is considerable. Should inflation increase, then the effects of GMP become very much greater.
If you want to contact The Department for Work and Pensions for questions about the new State Pension or to ask for a statement you can ring the number shown in this link: https://www.gov.uk/future-pension-centre, Monday to Friday between 8am and 6pm.
APS Pensioner-elected Trustees
We are delighted to report that Frances Axford and Ian Heath, the two candidates supported by both ABAP and separately by Mike’s List, are to be the next APS Pensioner-elected Trustees. Their terms of office starts on 1 April. Since they were the only candidates for the two vacant positions, there will not be an election. ABAP would like to thank them both for undertaking their arduous roles.
A drawback of there being no requirement for an election, if past practice is followed, is that BA Pensions will not publish the candidates’ Election Addresses. They are therefore published below so that you can be confident in your new Trustees. The ABAP Committee was pleased to meet Frances Axford in the New Year. Ian Heath has been an ABAP Committee member for some years. The Committee is confident that both Frances and Ian will make excellent Trustees.
For the avoidance of doubt, I should like to reiterate that the ABAP Committee fully understands that a Trustee’s duty is to act impartially for the benefit of all scheme members. In supporting the election of any individual Trustee, ABAP seeks to ensure that BA pensioners have the best person for the position. The main qualification for a Trustee is soundness and the main asset is common sense. The ABAP Committee fully understands and accepts that it has no control whatsoever over any Trustee.
Election Address of Frances Axford
I am a pensioner of APS living near Oxford and I joined BOAC in 1969 after university.
At BOAC/BA I worked in Productivity Services, Market Research and Eastern Division, where my last position was Marketing Planning Manager.
I worked in Engineering, Commercial, Ground Operations, Flight Operations & Management Accounting in Productivity Services & both my Market Research & Eastern Division experience demonstrate competence in the Commercial Area.
In 1982 I left the airline to have a baby & subsequently worked in various freelance roles including teaching on the Open University’s MBA programme. In the early 1990s I trained as a chartered accountant with Grant Thornton, auditing a variety of large & medium sized businesses & moved on to work in industry. From 1997 to retirement in 2011 I worked for Unipart, a warehousing & logistics company in a variety of roles both client facing (including contract negotiation) and the full range of financial management.
My qualifications for a trustee appointment are that I have a BSc in Mathematics and am a Chartered Accountant.
I am standing for this position because I am keen to ensure active members, deferred members, pensioners and the dependents of APS receive the best possible deal from both the Airways Pension Scheme & British Airways within the terms of the Trust Deed.
In this regard my experience both as a Chartered Accountant & my career outside the airline industry would provide the Trustees with a relevant & wider skill set.
In particular I feel that these skills will be beneficial in relation to the RPI/CPI court case, & here I want to help achieve the best outcome.
The role of a Trustee is a weighty one and accountability for Scheme decisions rests with the Trustees. I realise I need to complete specialised training & am working my way through the Trustee Toolkit training as evidence of my commitment. I am about half way through this at the time of writing.
In sum, I hope that you will consider voting for me if you want a fresh face as a trustee who can offer both professional financial competence & varied working experience both inside & outside the travel industry and who will act with integrity, responsibility & independence on behalf of all members of the Scheme.
I would like to thank ABAP and Mike Post for their endorsement of my candidacy. END
Election Address of Ian Heath
I am 64 years old and retired from BA in September 2006. I live in Egham, Surrey with my wife Kwai Lin Lim, who is also an APS pensioner, and our 17-year-old son Stephen.
I have a BA degree in Mathematics from Oxford University, an MA in Operational Research from Lancaster University and, through BA, an MBA, also from Lancaster University.
I joined BA in 1974, in Operational Research (OR). I worked in a variety of OR areas for nineteen years with departments such as Scheduling, Corporate Planning, Revenue Accounts, Relationship Marketing, Brands, Sales and Cargo. I became an OR Manager. In OR, we use mathematical modelling and statistics to help evaluate the past and hence forecast the future under different scenarios. This helps BA make robust decisions on important areas such as schedules, pricing, booking policy and aircraft purchases.
In 1993, I moved to Revenue Management to coordinate and prioritise its various system developments that help optimise booking and pricing decisions.
I joined Fleet and Network Planning in 2002. I did much analysis evaluating the best future schedules, aircraft purchases, configurations, and possible alliances and mergers.
I have been a committee member of the Association of BA Pensioners (ABAP) since 2010 and represent it on the Royal Statistical Society’s RPI/CPI User Group, which lobbies for greater accuracy in both the Retail and Consumer Price Indices. I coordinated ABAP members’ feedback to the UK Statistics Authority (UKSA) reviews: on RPI and CPI, in 2012 and “Measuring Consumer Prices”, in 2015.
I am grateful for the support of ABAP and Mike’s List should there be an election.
Since retiring I have also stayed active by tutoring maths, writing maths A-level questions for one of the examining boards, cycling, playing football and running an allotment.
I am seeking election because I have long had an interest in APS. I built a deci sion support system in 1984 on the BA Dec10 computer to evaluate APS and NAPS options, given variable forecasts of future inflation, pay and life expectancy. Though certainly not a trained actuary, I understand the maths and statistics behind actuarial work.
If I am elected as a Pensioner Trustee of APS, my mathematics and statistics background will help me in that role. I would throw my full energy into the learning required. I understand the duties and responsibilities of a Trustee and would be honoured to become one. END