CWU SPONSORED PENSION SCHEMES

[TrueBlueTerrier]

No. 1151/10
Ref: AK/PM/sh
Date: 22 December 2010


To: All Branches

Dear Colleagues

CWU SPONSORED PENSION SCHEMES

LTB 828/10 dated 27 September gave the first update to Branches on the actions being carried out with regard to Motion 54 carried at this years General Conference pertaining to the above. Since that time further actions have taken place and the purpose of this LTB is to update Branches on one particular aspect of the debate i.e. “full merger”

As branches will appreciate dealing with pensions schemes is an extremely complicated issue. Quick fixes are not only not possible, primarily because of legal requirements, but also to be avoided if we want to rule out any long term damage to the sponsors solvency position.

ADVICE

Firstly the CWU has taken time consulting with various professional advisors to identify independent legal pension’s advice that would provide clear and unequivocal advice when processing the proposition of merging the three schemes that we sponsor. This process led us to a company, Wrigleys Solicitors LLP, who have a specialist pension’s department dealing precisely with merger issues. The FOS committee have been informed of this development.

AUTHORITY

The substantive question and one that will ultimately determine how this issue is moved forward is “who has the power to determine, in finality, if any scheme can merge?” In order to seek an answer to this question we forwarded the three sets of Trust Deeds and Rules to our legal advisors. We asked them to read through these documents with a view to addressing the question above.

A meeting was arranged with Wrigleys attended by the Senior Deputy General Secretary to discuss, in the first instance, this issue.

The response given and now outlined in this LTB was a verbal response. In order that Branches are quite clear, we are in the process of having this advice formalised i.e. receiving it in writing and I want to be equally clear that this will be published, in its entirety, to all Branches either when it is received or as part of a further expanded report early in the new year. We say this in order to remove any ambiguity around access to the relevant information in this debate.

RESPONSE

All of the three Trust Deeds and Rules are explicitly clear that the final decision on a merger in any form rests with the scheme Trustees and no-one else.

This then raises a secondary question, “under what circumstances could or should the Trustees of each or all of the schemes be able to recommend a full merger?” Or to put it another way, what’s to stop them making this decision.

Before any such recommendation could be made any schemes Trustees are bound to seek and consider the advice of the scheme actuary. In considering this we need to understand the position of the schemes in relation to their separate funding arrangements: this is as follows (Note: 1:- funding refers to the ratio of assets to liabilities and 2:- these are approximate figures in that they are rounded to show the effect on each scheme and on any fully merged scheme)

Scheme A is currently approximately 60% funded; scheme B is currently approximately 80% funded and scheme C is currently approximately 92% funded. Any scheme actuary would advise that a fully merged scheme i.e. all assets and liabilities placed together would result in a fully merged scheme being approximately 80% funded.

On the face of it for scheme A this would improve the funding by almost one third. For scheme B the percentage would remain the same and for scheme C the funding position would worsen from 92% funded to 80% funded.

The fiduciary duty i.e. the legal responsibility of each set of Trustees is that they are required to act to protect the schemes members benefits – that is their statutory obligation. The Actuaries for scheme C would clearly advise the Trustees that they can not take actions that would move their members benefits from being 92% “secure” to 80% “secure” in other words this schemes trustees are simply not in position to vote to worsen the schemes funding.

It would appear that for scheme B the impact is neutral, however their current funding of 80% is, in monetary terms a smaller amount of money than 80% of a fully merged scheme a ratio of approximately £1million:£10 million. Again their scheme actuary would advise against such a full merger and they too would simply not be in a position to vote for a fully merged scheme.

For scheme A the decision seems to be much simpler. They would go from 60% funded to 80% funded and so this would improve their position.

Given that, as reported above the Trust Deeds are clear that only the Trustees can ultimately agree a full merger, it is obvious that such a vote is extremely unlikely to occur.

THE SPONSOR

The scheme sponsor however can consider taking action that would ensure that a full merger took place that resolved the issues detailed above. To do this the scheme sponsor would need to calculate what amount of money would need to be paid into the schemes to do away with the actuarial risks identified. To put it another way, how much money would the CWU have to put in, on day one of a fully merged scheme in order to remove the risks and allow the Trustees of the schemes to vote yes. We have been advised, again verbally, that the amount we would need to put in would be approximately £10 million.

Firstly we don’t have £10 million to put in and secondly we have no intention of accruing such debt (by borrowing) just to merge pensions schemes that even at that point would still have some further ongoing deficit.



OTHER

In order to ensure we explored all options and fully understand the position two further issues were discussed.

Firstly, what would happen in the extremely unlikely event that Trustees wished to ignore actuarial advice and voted for full merger regardless? It seems that those who voted to worsen the position of any schemes members benefits, in the face of contrary actuarial advice, leave themselves liable to personal legal action.

Secondly, before any full merger took place any scheme actuary would need to sign what is known as a GN16 note. This is a legal requirement under pension legislation that, when a scheme is merged “without consent” i.e. a decision taken by the Trustees and not voted upon by the members requires the actuaries to sign. Generally they sign to say that the transfer (new fully merged scheme) is in essence “no less favourable” than the current position.

Clearly for at least 2 of the 3 schemes the actuaries will not sign such a document, because the undertaking would be false.

Finally any fully merged scheme would have to be placed before the regulator and even if, by some mechanism everyone ignored all of the above and agreed to a fully merged scheme, it is impossible to envisage the Pensions Regulator doing anything other than not approving such a move.

NEXT STEPS

Clearly, the verbal advice, shared here is fairly blunt when it comes to assessing the possibilities of a fully merged scheme. In a nutshell the decision rests with the Trustees and they are both legally and technically unable to vote for such. Again, and to ensure that no-one is in any doubt, once the written advice is received it will be published to all Branches.

This does not mean however that the matter is at an end. Indeed there are an array of other options open to us (sponsor and Trustees) in moving this issue forward.

Representatives of all three schemes have met with the SDGS to begin to draw up a joint statement on how we intend to move forward on these issues, including and addressing as a priority, identification of each item of work that is duplicated and identifying steps necessary to address these and thus reduce administration expenditure.

The representatives of the schemes and the sponsor are to meet again in the first few weeks of 2011 to continue to progress this matter. A further report will be sent to Branches following that meeting

The bigger issue however is not the administration of the schemes, significant as that is, but the actual deficits. We have widened the remit of the group to begin discussing what further options are open to us in this regard. Clichéd as it may be but at this stage nothing is ruled in and nothing is ruled out. Additionally we will also be taking independent legal and actuarial advice on these matters and these too will be published to Branches.

CONCLUSION

As I have laid out, the purpose of this LTB was to update Branches on actions taken thus far. Primarily, in order that everyone is in possession of the same relevant information as opposed to supposition, I wanted to share the advice received.

As can be seen there is no quick fix, however there is a clear commitment now, from all parties concerned, to work together to produce the best possible solution and for the CWU this means a more efficient and less costly solution. This aspiration is recognised by the three schemes and they are committed to working jointly achieve it.

Any enquiries regarding this LTB should be addressed to the Senior Deputy General Secretary’s Department on telephone number 0208 971 7237 or email address sdgs@cwu.org.

Yours sincerely


Tony Kearns
Senior Deputy General Secretary.

[fishtank]

It doesn't look possible to merge the three pension schemes.
The UCW scheme or scheme A as it's called here is a major threat to union finances...will it be allowed to pull the union towards bankruptcy?....is it a runaway train?
Sell Wimbledon and plough the proceeds into the pension scheme?
Reduce the level of representation to guarantee the pensions of CWU officials and employees when our own pensions are in such a perilous state?
Increase subs again?

No easy answers or quick fixes...