O2 Pensions

Updates:

Briefing no. 41: 7th November 2012 - Telefonica O2 Ltd pension review - result of ballot
Briefing no. 39: 22nd October 2012 (PDF) - Telefónica O2 UK Pensions Ballot - CWU recommends that you VOTE YES. Watch CWU assistant secretary Sally Bridge explain what the pension changes mean in this CWUTV video:



Briefing no. 38: 9th October 2012 - Telefónica O2 UK Pension Review 2012 - Consultative Exercise - Conference Calls
Briefing no. 36: 27th September 2012 - Telefónica O2 UK Pension Review 2012 - Consultative Exercise Ballot Timetable

Briefing no. 33: 24th September 2012 - Telefónica O2 UK Pension Review 2012

Background

As you are aware the CWU has been in discussion with the Company on a pension review for some time that has involved an overall examination of all pension plans, as well as to make pension provision more attractive for those O2 employees that are not currently members of any plan.

At this moment in time the vast majority of employees are not members of the existing schemes and from March 2013 Telefónica will be legally required to enlist all employees into a pension plan. This is called auto-enrolment and as part of the review Telefónica have discussed with the CWU how best to make auto-enrolment attractive and worthwhile; as well as review the current money purchase scheme to ensure that it is competitive and fit for purpose.

This review has also included the final salary sections against the background of increasing pressures of sustaining the current final salary arrangements and the risks and costs associated.

Negotiations

The negotiations have so far spanned over 9 months in which the CWU has attempted to achieve an agreed package that is fair for all and that can be recommended to the entire membership. This has been an extremely difficult and complex task of trying to balance the needs of the majority while protecting the benefits of the minority.

Whilst there are a few issues that remain subject to discussion and will be addressed during the full 60 day consultation period we have a way forward on a set of principles for a sustainable pension scheme which will be fit for the future and adequately provide for those who have already built up significant benefits in their existing O2 pension.

Therefore, the CWU National Team which includes representatives from around the UK is now in a position to recommend changes which will take place from the 1 March 2013.

Telefonica briefing
The terms of the agreement are summarised below. CWU members are encouraged to read this newsletter in association with the company documentation: Telefonica 2012 pension review consultation pack.

There are 3 main groupings of people affected which this agreement attempts to address.

1. Those who are not in any current Telefónica pension scheme and will be subject to auto-enrolment

2. Those in Section 1 of O2's pension scheme - The Defined Contribution (DC) Scheme - from April 2001

3. Those in Sections 2 & 3 of O2's pension scheme - The Defined Benefit (DB) Schemes - those employees who transferred from BT in 2000.

1. Auto-enrolment of Current Non Pension Members

On the 1 April 2013 if you do not belong to any existing O2 pension scheme and you aren't paying contributions you will be auto-enrolled into Section 1b of the Telefónica UK pension plan if you meet the following criteria:

  • over age 22 but below state pension age;
  • earns over £675 a month - that's £8,105 a year (subject to change in line with statutory limits);and
  • work in the UK for a Telefónica group company.

You will be automatically enrolled into Section 1b of the Telefónica UK Pension Plan at the following rates:

Time period

Employee contribution

Employer

contribution

1 Apr 2013 - 31 Dec 2016

1%

2%

1 Jan 2017 - 31 Dec 2017

2%

4%

1 Jan 2018 +

3%

6%

The principles adopted with auto-enrolment is to make the scheme affordable for all, particularly those on lower salaries, hence the reason why the employee contribution starts at 1% and represents a phased approach in order to help our members adjust to pension saving.

However, these timescales or employee rates are not prescriptive. You will be given the opportunity to pay more than the minimum. It is the view of the CWU that that if you can afford more than 1% you should increase your contribution in order to maximise your pension pot.

  • Remember your contribution attracts tax concessions - tax relief is available on pension contributions so that any increase in payments will be offset to some extent by tax relief e.g. a 3% contribution rate before tax equates to around only paying 2% after tax and NI.
  • Those employees that join the scheme will also benefit from life assurance of 5 x basic salary.

Opting out

The law requires Telefónica to auto-enrol but you can opt out. The company will advise you more about this later. However, it is the view of the CWU that you should think carefully before opting out as there are many advantages of being a member of the pension scheme including enhanced life assurance.

2. Current Members of Section 1 - DC Scheme

From the 1 March 2013 the following funding structure will be introduced for all current members and prospective members of Section 1 of the Telefónica UK Pension Plan.

The following table illustrates the current contribution rates and how the rate you pay will be mapped across to the new structure.

Pre-1 March 2013 Post 1 March 2013

You

currently

pay*

Telefónica

currently

pays*

You will

continue

To pay *

Telefónica

will now

pay*

4%

4%

4%

6%

5%

5%

5%

6%

6%

6%

6%

9%

7%

7%

7%

9%

8%

8%

8%

9%

9%

9%

9%

11.5%

10%

10%

10%

11.5%

* All contributions continue to be as a % of basic salary.

  • The revised money purchase pension scheme for members in Section 1 provides an increase in employer contribution rates up to a maximum of 11.5%.
  • There will be a Permanent Health Insurance (PHI) Scheme which will provide better protection for those people who become unable to work due to illness.
  • New members to the scheme will be covered by a 5 x basic pay lump sum and existing members will continue to have cover of 3 x basic pay lump sum plus a dependent's pension of 30% of your basic pay.

This represents an extremely competitive pension provision which is better than any other employer and along with your contribution should produce a significant pension pot.

3. Final Salary Sections - Defined Benefit - DB Scheme

Quite clearly this has been the most problematic part of the negotiations as the CWU and Prospect have battled for a number of years to retain the final salary sections of the Defined Benefit Plan, you will recall that the outcome of the last review resulted in an increase in employee contribution rate to achieve this.

Whilst as part of the previous review we made changes to keep this plan open we could not agree on a way forward that brought the risk of managing a scheme of this nature to an acceptable level for Telefónica.

Telefónica UK has made it clear that they are a company which is reorganising and repositioning itself for the future. Many of those changes are evident and along with the volatility of the final salary plan, huge deficits that are now running into hundreds of millions (C250 million) and with the long term risks this scheme has become unsustainable given the company's financial position.

Unfortunately the CWU cannot ignore these problems.

We have therefore been concentrating our efforts on achieving a fair and reasonable alternative. This has been a difficult objective as the structure of a final salary pension scheme and that of a money purchase scheme are entirely different and it is not possible to have an entirely equivalent alternative.

However, as an outcome of the negotiations we have secured a long term enhanced position which will, if accepted, provide permanent compensation for the loss of the DB scheme.

The changes are as follows;

  • The final salary sections for DB scheme will close on the 28 February 2013. All service up to 28 February 2013 is protected and you will become a deferred member in line with the plan rules.
  • All final salary members become Section 1A members and receive the following paid by Telefónica:

1 March 2013

A Pension Supplement of 21% of pay until 30 June 2016.

30 June 2016

A Pension Supplement of 16% of pay thereafter.

  • The Pension supplement can be allocated to pension, take home pay, or a combination of the two.
  • Your employee contribution into Section 1A remains unchanged. i.e 7.5% or 10%.
  • The definition of pay used for this group is based on the same definition as under the current final salary plan i.e. those allowances that are pensionable.
  • Those who have already opted out during the previous review will get the same terms effective from 1 March 2013.
  • Life assurance benefits - 4x pensionable pay lump sum.
  • Dependents - pension of 30% of pensionable pay. Your dependents will also receive a pension which is proportion of what your deferred final salary pension would have been.

The CWU believes that it is in your interest to remain as a pension member of Section 1A as there are significant benefits including employer contributions and enhanced life assurance.

Future Changes

The CWU has stressed to the company that subject to agreement that these changes need to provide a sustainable pension plan for the future. Telefónica has written to the CWU and have made a commitment on this basis.

Union Recommendation

The CWU understands that there are significant changes that are made within this pension review and that it will affect each of you in different ways, for some it will result in an increase in costs and for others it may alter your future plans.

However, we have exhausted the negotiating process on the main issues and we have a package that we are prepared to recommend to you via a consultative ballot.

Details of the ballot timetable will follow shortly.

Meanwhile, prior to any ballot it will be our intention to hold members meetings at all the main sites to discuss the changes as well as various conference calls for those members who are unable to attend.

In the meantime please let your local CWU representative have your views.

CWU contact details can be found along with all O2 Newsletters on http://www.cwu.org/24120/o2.html.


In addition to the CWU briefing please read the Telefonica consultation pack.

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