From: Mark Thompson
Sent: 13 September 2010 07:47
Subject: Updated pension proposals
This email is going to everybody
Dear all,
When I last wrote to you on 1 September, I said that we were listening carefully to the concerns which many of you had raised about our initial pension proposals and that we were exploring ways of addressing them – while still achieving pension arrangements at the BBC that will be sustainable and affordable in the long term.
Some of the proposals – for instance to close the defined benefit scheme to new members – have not proven controversial for most of you. But you have expressed serious concern about some aspects of the proposals which affect current members of the defined benefit scheme.
You'll remember that we proposed two choices for these current members: either to stay in the defined benefit scheme but with a 1% annual cap on the future growth of pensionable pay; or to transfer to a new defined contribution scheme.
Many of you told us that you feared that the 1% cap might erode the pension you'd already built up in real terms (because your pensionable pay might grow more slowly than inflation) and that it would also mean that future salary growth (for instance through promotion) would not be fully reflected in pensionable pay. The terms of the proposed new defined contribution scheme are competitive and some of you have acknowledged that – but many of you have also said that you don't want to take the risk of transferring to a defined contribution scheme, no matter how good it is. In the light of these concerns, we've decided to keep the existing two proposed choices on the table but to add a new third option for current members, a career average benefits option which we've called CAB 2011.
If a current member opted for CAB 2011, this is how it would work.
First you would leave your existing defined benefit section in the BBC pension scheme. As a result, you would become a "deferred" member and pensionable pay you had accrued up to that point would rise broadly in line with inflation. You would then immediately join the new CAB 2011 arrangement in which you would build up benefits year by year for your remaining time at the BBC. The benefits would be based on your average pay from the time you joined CAB 2011 to the time you left the BBC.
There would be no cap on how far this average could grow if your salary grew over the period either because of annual or other pay rises or because of promotion.
We are still working through the full details of CAB 2011, but we are proposing that it should have a pensionable age of 65, that pensions would accrue at the same rate as the current CAB scheme (1.67% of salary per year, in other words 1/60ths), that pensions in payment should increase by the lower of consumer price inflation and 2.5%. To be affordable, member contributions to CAB 2011 will have to be higher than for the current career average scheme, for which they are 4% of salary. For CAB 2011, we are proposing that member contributions should be 7% of salary.
CAB 2011 is a significant addition to our proposals for pension reform. We have shared it with the joint unions and will continue to discuss it with them over the coming days. We also want to leave plenty of time for everyone in the BBC to understand it and weigh it alongside the other proposals. There will therefore be an additional consultation period which will run from 16 September until mid-November. During this fresh consultation period we will be providing more information on the new option and offering you the chance to attend a new round of revised pension seminars. The pension modeller is also being updated to reflect the new option and we hope to have this ready by the end of the month.
To kick off the next consultation period I am holding a Ringmain event on Thursday 16 September between 11.30 and 12.30 where I, Lucy Adams and some of our pensions specialists will be on hand to try and answer as many of your immediate questions about this new third option as we can. Please click here if you would like to attend the event in person.
Pension reform at the BBC is inevitable. We have a large current deficit in our scheme and face long-term pressures which, without action now, would undermine the scheme and compromise the broader finances of the BBC. That is why we've tabled our proposals for reform this summer. CAB 2011 is an important addition to those proposals.
It is not a panacea, but in the terms I've set out above it is affordable, and I believe it goes a significant way to addressing the concerns you've expressed to us during the consultation.
All the best,
Mark Thompson
Director-General
