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This is taken from Ariel Online:
Pension Changes June 28 2010
The BBC wants to effectively end the existing defined benefits [DB] pension scheme – which for staff on Old and New benefits is linked to their final salary. Although members can remain in the scheme future increases to their pensionable salary would be capped at 1% every year, though their actual salary might increase at a greater rate.
It follows an interim actuarial evaluation by the Scheme Trustees, which revealed that last year the deficit in the pension fund had soared to £2BN. The BBC estimates filling the gap while retaining current pension arrangements could see its contribution to the scheme rise to around 10% of the licence fee.
Proposals for consultation So the following actions are proposed for consultation with staff.
* Keeping the Scheme open to current members.
* From 1 April 2011 future increases in pensionable salary [the salary used to calculate your defined benefit pension] will be limited to a maximum of 1% a year.
* From 1 December 2010 the Scheme will be closed to new members. After that date new joiners will be offered a defined contribution [DC] plan. The BBC will tender for a supplier of that plan.
* All current Scheme members will be able to choose whether to remain in it or join the new defined contribution plan for future pension benefits.
There is, at present, no suggestion of raising the pensionable age, which is 60 for Old and New Benefit members, and 65 for staff on the Career Average Benefits scheme introduced in 2006, nor of asking members to pay higher contributions.
Reasons why
The BBC's chief financial officer, Zarin Patel, says the existing arrangements have to change because the costs of providing them have soared. This is mainly attributable to increases in longevity, which are predicted to cost pension funds even more in future years. Financial market conditions have also contributed, although they are stabilising.
Patel said: 'I hope people will understand the reasons why we have to make the changes, and that the alternatives, asking the licence fee payer for more, or taking money out of programmes and putting it in pensions, would be a really unpopular choice.'
If agreed the proposals would directly affect everyone’s pension, with the exception of staff retiring before April 2011, or those who get pay rises of less than 1% a year. There will be no reduction in defined benefits built up to date, and you can continue to accrue more through the Scheme, but these will increase by no more than 1% a year.
What happens now Younger staff, and those who have only worked at the BBC a short time, in particular, will need to seriously consider their options, as the longer they work, and the more their salary increases, the further their pension from the existing scheme will fall behind.
The present DB scheme means you know what your pension will be, and it will be pegged to your final salary.
A DC scheme takes payments from the employer and employee and invests them, with the proceeds used to buy an annuity on retirement. Annuity rates rise and fall, affecting the amount of income that can be generated by your investment, which will be linked to stock market conditions when you retire.
And a defined contribution scheme requires you to be pro-active. You will need to monitor how your fund is doing, so you can increase contribution rates when investment returns are poor, or costs rise, otherwise your retirement pension will be smaller than you might have expected.
For staff who join the DC scheme the BBC is offering to ‘match’ contribution rates, which would start at 4% of salary, and to encourage greater saving will pay an additional 1% for those who contribute 6% or 7% of salary, and 2% to those who save 8%. Members can make contributions of more than 8% but those would not be ‘matched’. Nor will future pensionable salary increases be limited in the DC scheme, as they will in the DC scheme.
Consultation and advice These proposals are sweeping and important for the future of every member of staff. The myPension site on Gateway has dedicated pages on the consultation, with illustrations of how the changes will work and detailed questions and answers.
There is an online modeller from which you can estimate how the proposed changes might affect your pension.
There will be pension seminars around the UK, and a list of dates and venues will be posted on the myPension site.
If you want to comment on the proposals email myPensionFeedback, or write to the Pension and Benefits Centre, Broadcasting House, Cardiff, CF5 2YQ, and the consultation process closes on September 30.
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