London Overground Rail Operations is set to reduce the level of employee contributions into its defined benefit (DB) final salary pension scheme.
This is possible because the DB scheme is in surplus, so it has more assets in its fund than it needs to meet its liabilities to pay current and future pensions.
The train operator is currently in consultation with staff and unions about reducing employer and employee contributions. Employee contributions could fall from 10.6% to 9.28% from July.
Under the scheme’s structure, 40% of contributions are paid by employees and 60% by London Overground Rail Operations.
Darren Hockaday, HR director at London Overground Rail Operations, said: “Although [the contributions] are coming down, they are not coming down as much as we could afford.
“We are keeping a buffer of slightly more contributions, which is seen as a very good compromise with our trade union colleagues. This was what the business was proposing to do, in terms of having the right balance between keeping the scheme affordable.”
By making the DB scheme more affordable, the company expects to attract lower earners into the pension.
The prospect of increased membership makes it even more important to ensure there is a buffer to protect the scheme’s long-term sustainability.
In 2013, the final salary scheme will undergo further evaluation to monitor fund performance, active membership and number of scheme retirees.
When London Overground took over from Silverlink, a concession was agreed to clear the final salary pension scheme’s existing deficit.
Hockaday said: “As part of the concession agreement, the key stakeholders made any deficit good at the start, so [the scheme] effectively started with a clean bill of health.”
Read more about defined benefit pension schemes