High-profile changes have been the big news for Telegraph Media Group’s pensions and benefits in the past three years, says Debbie Lovewell
Despite operating in a sector that was hit hard by plunging advertising revenue in the recession, Telegraph Media Group appears to have weathered the storm. According to the Audit Bureau of Circulation’s figures to April 2010, The Daily Telegraph remained the UK’s best-selling morning quality newspaper, despite a slight fall in sales year on year.
In 2006, Telegraph Media Group significantly altered its approach to publishing news, moving from a largely print-based operation to one that puts digital media at its heart. By pure coincidence, that year also saw the arrival of pensions manager James Churcher to the organisation – a move that was also to result in significant change. In his three years with Telegraph Media Group, Churcher has been the driving force behind a number of high-profile changes to the company’s pension and benefits package.
The first of these was the simplification of pension arrangements. At the time Churcher joined the organisation, it had a hybrid pension scheme that operated as a defined contribution (DC) plan for future accrual, but had a number of defined benefit (DB) legacy arrangements. Staff are automatically enrolled into the scheme, resulting in take-up of about 90%.
Bulk buyout of DB liabilities
To turn the scheme into a purely DC arrangement, the group began a bulk buyout of its DB liabilities in 2008, working with Legal and General, and Lane Clark and Peacock.
This first involved changing the investment strategy for the underlying assets that backed the DB scheme. “We had already been phasing out of equities into bonds,” says Churcher. “We then deliberately started adjusting the balance of bonds between gilts and corporates to track the way insurance companies were pricing buyouts to achieve stability. We had to think through the duration issue quite a lot because we had fairly long-term liabilities and a lot of our bond investments were in short-dated bonds, so we were actively buying long-dated gilts and strips to stabilise the duration relationship between assets and liabilities. On the DB side, we sold out of equities completely in December 2007, which, with the benefit of hindsight, was fantastic timing.”
Investment strategy was not the only challenge the group faced during the buyout process. It also had various groups of staff who had special benefit guarantees that needed to be managed out. For example, members of the DC plan had a DB ill-health early retirement plan, so if anyone had to retire early because of incapacity, benefits were calculated using a DB formula.
“For pensions already in payment, we were able to buy them out,” says Churcher. “We had to do quite a complicated exercise of whether incapacity pensions were going to be part of the bulk buyout or whether we were going to buy them out individually to get the best impaired life annuity rates. We did one final check if everyone still qualified for the benefit and if they still qualified at that point, we made it a lifelong benefit.
“But it was a bit difficult to know what to do with employees who were in the scheme who already had this DB guarantee written into the scheme in the event of ill-health retirement. It was always subject to employer discretion, but obviously we could not just take that away and provide nothing.”
Group income protection plan
The solution was to stop granting ill-health early retirement benefits under the scheme and instead introduce a group income protection plan outside the company’s pensions provision. Through the new scheme, after a six-month deferred period during which the employee receives full pay, staff then receive a monthly income of two-thirds of salary for three years. After 36 months of claiming, if an employee has not been able to return to work, a lump-sum payment of five-times basic salary is made.
The scheme works alongside the group’s occupational health provision. This means that if an employee is absent for a significant period, they are given access to an occupational health professional, who will assess whether they can return if minor adjustments are made to the workplace or their working hours. “We have now tied [income protection] in with looking more comprehensively at incapacity, but always with the view that it is in the best interests of the individual and is in the best interests of the company in generating shareholder value that we would rather pay people for doing their job than pay them a benefit for doing nothing,” says Churcher. “But if they cannot come back to work, the scheme is reasonably generous.”
To make such large-scale changes to benefits, communication was vital, says Churcher. “We were communicating with members throughout the process. We wrote to them in May 2008 explaining how the deal was done. We had a series of meetings in-house where I met people if they wanted it explained in group discussions what we were doing and why. That was made more complicated by the fact some people had the special benefit guarantee and had to be dealt with differently.”
Weak communication on pensions
But when it came to communicating issues such as pensions, Churcher admits this was a weak point. “We had a good scheme and nobody knew it was a good scheme because we did not tell them in a way they could understand,” he says. “The literature was disappointing when you think about the quality we put into the [magazines] we give away free with the paper at the weekend, yet we were giving our own staff just some words printed on paper to communicate valuable benefits. So we appointed a communications consultant for the first time and we have radically redesigned all the literature for the pensions plan and associated benefits.”
Its new communications include a members’ booklet which explains the scheme to staff, a booklet setting out employees’ options at retirement, and a revamped newsletter that is sent out three or four times a year.
The company also offers staff a financial awareness programme, which it introduced almost two years ago. “We are aware that, particularly with DC pensions, a lot of the risk and decision-making that traditionally rested with the trustee group has effectively moved to personal governance,” says Churcher. “We recognised staff need financial advice and financial education, and the workplace is a good place to provide it. Financial education in itself can be a valuable employee benefit.”
The financial awareness programme has two main strands: seminars on financial issues such as mortgages, savings and debt management; and access to an independent financial adviser (IFA), which is funded by the company for all staff. “I would encourage all employers to do it,” says Churcher. “[Staff] appreciate very much something that financially can transform them, yet it costs the company a very modest sum.”
The scheme can also help staff understand specific aspects of their package, such as the options available as they near retirement. “We do not allow income drawdown [on retirement] but we tell [staff] that one of the options on which they need advice is they can transfer out into a Sipp [self-invested personal pension] where more things are available than buying annuities, but they need advice to do it. We ask them to choose: do they want a five-year guarantee, a 10-year guarantee, spouse’s pension, or dependants’ pension? Most are not able to make that decision without someone to hold their hand.”
Structure of pension contributions
After a busy few years, the company is not done with change yet. Churcher says it is now looking at how its pension contributions are structured and considering whether to move away from its age-related scale. “It is unnecessarily complicated. The trend among our peer group is for pension contribution formulae to be much more straightforward.
“We originally put in a scheme that was age-related when it was superseding a final salary scheme. The benefits from a final salary scheme do cost more for older people than for younger people, so it was broadly maintaining a level of provision from final salary. That was some years ago and the final salary scheme has been gone a long time. For most of our members, their entire pension provision has arisen in a DC environment.
“The private-sector world is now DC. Nobody remunerates people based on age any more. We have got to ask the question: do we want to remain age-related or do we want our contribution scale not to be age-related?”
It looks like the company will be making headlines for some time to come.
Career history: James Churcher
Pensions manager James Churcher has been with the Telegraph Media Group for three years. He joined in October 2006 from the Brambles Group, where he was UK pensions manager.
Churcher learned much of his craft when he was pensions manager at Confederation Life (which became Sunlife of Canada). “That was a fascinating job because I was looking after third-party administration [TPA] for the insurance company’s clients and managing the in-house pension scheme at the same time,” he says. “That was a great opportunity to learn both sides of the fence. Technically, the staff pension scheme was a client of the pension scheme, so I was the in-house pensions manager and I was running a TPA service. I think that is where I learned in practice a lot of what I know.”
Churcher belongs to a number of industry bodies, including the Pensions Management Institute, the Chartered Insurance Institute and the National Association of Pension Funds. He is also part of the Investment Governance Group, set up under the Labour government to look at investment governance in pension schemes.
“I do not get bored, but I have a lot of mental energy,” he says. “I have always got ideas. I am passionate about pensions.”
Telegraph Media Group at a glance
The Daily Telegraph newspaper was founded in June 1855 by Colonel Arthur B Sleigh to air a personal grievance against the future commander-in-chief of the British Army, Prince George, Duke of Cambridge. Initially called The Daily Telegraph and Courier, the first edition was just four pages. Today, the Telegraph is the only quality newspaper to have remained a broadsheet.
The Daily Telegraph’s sister Sunday paper was founded in 1961. The papers’ online version, Telegraph.co.uk, was launched in November 1994. The company also publishes a weekly world edition of the Telegraph.
In October 2006, the company rebranded as Telegraph Media Group, repositioning itself as a multimedia organisation. Its new digital services include an iPhone application, which was launched in 2009.
The company is currently owned by David and Frederick Barclay, who bought it from previous owner Hollinger International, then chaired by Conrad Black, in 2004. It employs about 1,000 staff.
According to the Audit Bureau of Circulation’s figures to April 2010, The Daily Telegraph remained the UK’s best-selling morning quality newspaper, despite a slight fall in sales year on year. Its average daily net circulation for April 2010 was 683,220 copies.
Case study: Pension and health perks hit the headlines
Health and safety manager Graham Windham has worked for Telegraph Media Group for 23 years.
He values the wide range of benefits provided by the company. “The organisation does a lot for us,” he says.
Windham is a member of the Telegraph’s pension scheme, to which he makes additional voluntary contributions.
“The company pays quite a lot into that and we do not get charged administration,” he says. “There is a very good website for the pension scheme. I think it is really important, with the situation as it is, that we save for our pensions as we do not know what is in the public kitty.”
Windham also values the health and wellbeing services provided by his employer, such as its on-site gym, free and subsidised fitness classes, free corporate massage service, and on-site doctor and physiotherapy services. “As it is very difficult to see a GP these days, the company lays one on. It is very good,” he says.
“If you have to see a doctor normally, you have to weigh up whether to take a half-day off work. But within 10 minutes with our [on-site] GP, you can have [a matter] clarified.”
Benefits at Telegraph Media Group
Trust-based defined contribution scheme with age-related employer contributions.
- Private medical insurance for all employees.
- Income protection for all staff.
- Employee assistance programme.
- Free eye tests.
- Personal accident insurance based on job need for staff who work in dangerous locations.
For some staff, according to job need or status.
25 days a year as standard, increasing with long service to a maximum of 30 days.
Performance-related pay and bonuses
Monthly bonus structure for some commercial employees. Annual bonus scheme for managers based on corporate delivery of profit objectives and individual performance.