Train staff are set to strike after talks with Hull Trains broke down over the proposed closure of the defined benefit scheme, while coffeemaker JDE Peet’s has already closed its overfunded scheme. Is the demise of DB gathering pace? 

 

The pandemic and its impact on some industries has led many to speculate that defined benefit scheme closures will accelerate. Even where employers were not directly affected by lower revenues, they may have been spurred to do a root and branch review of their business and identify the DB scheme as a potential risk. 

 

Bus and rail operator FirstGroup had been planning to close the DB scheme for Hull Trains, a section in the Railways Pension Scheme, despite being 99% funded, and amid the company bolstering its main DB scheme thanks to a windfall from the sale of two North American entities, announced in April this year. At the time, the National Union of Rail, Maritime and Transport Workers criticised the plan, while FirstGroup justified its course of action pointing to “high levels of investment growth and risk” in the scheme’s assumptions, saying Hull Trains could not absorb an increase in liabilities. 

 

     

The RMT is now calling for strike action to “start again from Monday, with a wave of strike action kicking off on Sunday 8th August, in a fight to defend decent pension rights and to force the company to honour their long-standing obligations to staff”. The RMT has also restarted a ban on continuous rest day working and overtime from 2 August. 
 
The union said it is calling for industrial action because discussions with the Hull Trains managers at conciliation service ACAS have “broken down without progress”, although it indicated it remains available for talks.  
 
RMT general secretary Mick Lynch said: “RMT remains fully committed to defending our members’ rights to a decent pension in retirement and will do everything in its power to protect our members’ final salary pension rights.” 

 

He added that “this is a well-funded scheme with a healthy valuation report and there is absolutely no need for the company to take this drastic step of closing it down”.  

 

Andy Mellors, managing director non-franchised businesses at FirstGroup Rail Division, said the company had been engaging with union representatives and consulting extensively with members about the proposal to close the final salary scheme since October 2020.  

 

“As a direct result of the feedback received during the consultation, we revised our offer to include an additional company contribution for those employees who are existing members of the scheme we are proposing to close. RMT consulted with their members and unfortunately, they chose to vote for industrial action against the proposed pension changes a few months ago,” he said. 

 

Mellors said after additional discussions with the Trade Unions, further increases to the maximum level of company contribution up to 15% of salary were proposed. “Further engagement with RMT has since taken place and discussions are still ongoing as we continue to work towards finding an agreement. RMT have refused to put this revised offer to their members as a referendum ballot,” he said. 

 

He added that the company did not receive any financial support from the government when it had to suspend services due to the pandemic. “This has had a major impact on Hull Trains financially. Changes to the pension provision are essential in order to preserve the future viability of our business,” he argued. 

 

 

JDE Peet’s, a Dutch coffee and tea company which floated on the Amsterdam stock market last year, is another employer that is seeing its DB scheme as a problem. It first proposed to close the £2bn UK scheme to accrual in January 2021, implementing the change at the beginning of July. 

 

Its UK DB scheme – the most significant it has – was 109.6% funded last December, with a technical provisions funding basis of gilts + 50bps and investing 90% in matching assets. Pension contributions stood at between 42% and 59% of pensionable salary. The company reported an operating profit of €933m last year, a reduction of 10.5%. 

 

A JDE spokesperson said the change to DC will result in “more consistent benefits for all our associates with the majority of UK associates currently already benefiting from a Defined Contribution Pension Plan”.  

 

The spokesperson added: “We have proposed to make these changes because the costs associated with these pension plans are a major reason that the UK business is not competitive. Defined benefit plans are extremely expensive and complicated to run as they are affected by several factors outside of our control, and the profit and loss costs are volatile. The defined benefit plan had become unaffordable.”  

 

 

The Pensions Regulator’s latest annual DB landscape report shows 2,608 schemes were closed to accrual last year, and another 2,235 to new members, with just 567 remaining open to new joiners. The number of schemes closed to future accrual increased by three percentage points since 2019, to 47%; compared with earlier scheme years, this increase continues the existing trend.  

 

Independent trustee John O’Mahoney said he has not seen any acceleration in scheme closures over the last few months.  

 

However, he says DB closures should be considered. “I feel that even where a company is currently doing well financially it should be looking to close its DB scheme as their current fortunes may not last,” he warned, pointing to the changes in the corporate landscape over the past few years. 

 

  

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