First Group has agreed a strategy with trade unions to comply with the 2012 pension reforms by using both its defined benefit (DB) scheme and a new trust-based defined contribution (DC) plan.
The last tranche of new members will be able to join the transport operator’s DB pension next April. At the following joining date in April 2013, new staff will be auto-enrolled into the DC scheme, which will offer phased contributions reaching 5% for both employer and employee. Once a worker has been with the firm for nine years, they will be able to join the DB scheme in the following April.
John Chilman, group reward and pensions director, said: “If somebody does 30 years with us, they should expect almost exactly the same pension they would have got previously because the DC contributions they put in over the first nine years get more time to grow.”
After April 2012, all members of the final salary scheme will be contracted back into the second state pension and their accrual rates changed.
Although the same board of trustees will manage both pensions, FirstGroup will not use DB assets for its DC investments and will instead operate separate investment strategies.
The firm is now designing the default fund for the trust-based DC scheme. It is considering a fund based on a blended portfolio of assets with the level of risk defined by an employee’s age and risk tolerance.
A 60-day consultation over the pension strategy is under way with employees.
Read more about the 2012 pension reforms