Commonwealth War Graves Commission: Pension Fund

Angus Brendan MacNeil Excerpts

Monday 29th February 2016 Commons Chamber

[Chris Stephens]

I thank the hon. Gentleman for his intervention, and I agree with him.

To recognise the special nature of the job, the loyalty of staff and the financial sacrifices staff have made over the years, the commission has held a final salary pension scheme, ensuring financial security for staff who have spent their lives in dedicated service to the commission. The terms of this scheme are good with a low employee contribution, a spouse’s pension, death in service and lump sums based on final salary—40/60ths. That reflects the fact that the pension has traditionally been one of the most important conditions of service, recognising years of dedication and loyalty.

In December 2014, however, the CWGC announced the intention to close the final salary pension scheme in April 2016 and move staff to a far less favourable defined contribution scheme, the Group Pension Plan. The terms of this scheme are much higher employee contribution, lower employer contribution and less of a pension pot at the end. The changes will see a drastic reduction in the pensions of 180 long-serving staff, with some losing more than £6,000 for every year that they draw their pension. The introduction of the new pension will also see a reduction in employer contributions from the current 22.4% of salary to a limit of “up to 15%”. On average, employer contributions will likely be much lower as the 15% rate can be reached only when employees significantly increase their contributions in turn. That came just two years after the Commonwealth War Graves Commission had closed the final salary scheme to new entrants, promising:

“Closure of the scheme to new members does not have a negative impact on the funding of the existing pension scheme…The current pension scheme remains in a relatively strong surplus position when assets and liabilities are calculated on a long term actuarial basis.”

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

My hon. Friend is making a profound speech that chimes with some of the history books that I have read. He is right that the Government will find a lot of money for weapons, but they find less money for the wounded, and it is disappointing and sad that for the dead there is less money still. The facts that my hon. Friend is discussing go contrary to the sweet words that are often said about remembering and honouring the dead in Chambers such as this.

[Chris Stephens]

I thank my hon. Friend for that intervention, and I shall come on to say more about the position of the scheme.

The news of the closure of the final salary scheme has come as a terrible shock to long-serving staff, with more than 50% of those affected within 10 years of normal retirement age, leaving little time to readjust. For some, that has meant completely changing retirement plans as they can no longer afford to retire or as key assumptions such as being able to pay off a mortgage are no longer the case. Staff feel betrayed that what was promised to them for years is suddenly being snatched away.

Let us consider the financial position. In the commission’s statement of accounts of March 2014, the key numbers show a surplus of £1.4 million on income of £67 million, with balance sheet reserves up from £4.3 million to £7.2 million and net current assets up from £1.5 million to £2.2 million. The balance sheet shows an improvement in reserves of £2.9 million, due largely to the improvement of £2.6 million in the pension deficit from £8.3 million to £5.7 million. In its 2015 accounts, the position had changed. The balance sheet showed a deficit of £6.1 million, having been in surplus by £6.7 million in March 2014. The reason was a sharp increase in the deficit shown in the pension scheme, a deterioration of £13 million in the year, taking the deficit to £18.6 million. The background is the effect of the recent three-yearly valuation, which reflected a collapse in the forecast interest rates for the pension fund investments.

My first question to the Minister is: what investments resulted in this change from 2014 to 2015? Despite the commission announcing its intention to close the pension scheme in December 2014, formal consultation with the three trade unions representing staff at the commission—PCS, Prospect and Unite—did not start until June 2015. During the consultation period, the trade unions took a reasoned and helpful approach, proposing numerous alternatives in an attempt to find a solution that both recognised the financial position of the commission and mitigated the most detrimental effects on staff. However, the commission rejected all the proposals, remaining resolute on closing the final salary scheme and moving to a defined contribution scheme.

Proposals were numerous and wide reaching and included increasing member contributions to enable the scheme to stay open. The initial proposal put forward by the trade union side, a proposal that directly addressed the commission’s concerns about the pension scheme deficit and about future risk in the scheme, was as follows. First, it proposed a cap on pensionable earnings for future service with effect from 1 April 2016, which would immediately address the pension scheme deficit by enabling a downward revision of the actuarial costs of the scheme. Secondly, it proposed to increase member contributions from 1.5% to 5%, phased in over the next two years. Thirdly, it suggested that the decision on the closure of the scheme should be postponed for three years, linked to a further valuation of the scheme during 2018. That would enable a considered and measured review of the scheme’s funding, taking account of the previous two proposed measures, both of which would have a positive impact on past service deficit and future service costs. These proposals were rejected almost immediately, with no costing done by the commission, leading the trade unions to believe that the consultation was hollow and the commission was intent on closing the final salary scheme regardless.

The final proposal from the trade unions was the option of CWGC UK-based staff transferring to the civil service Alpha pension scheme, as provided for under the Cabinet Office’s new fair deal. We are aware that many scheduled bodies including English Heritage, the Churches Conservation Trust, the Royal Botanic Gardens, the Imperial War Museum and the British Council have been permitted to join the new civil service pension scheme.