Pension increase accepted

BECTU has accepted the increase in contributions to the BBC pension fund.

The union has also welcomed the Corporation's commitment to continue with a final-salary pension scheme.

This month (April 2003) the phased increase in pension contributions start with the BBC's payment into the fund rising by 0.5% to 5% of the wage bill, and will continue increasing over a three-year period until it reaches 6%.

Staff payments are also scheduled to increase, initially by 0.5% in April 2004, reaching 5.5% in April 2005.

Because staff are halfway through a two year pay deal, the BBC decided to defer the first increase in members' pension contributions for a year, which also avoids a double blow to take home pay when National Insurance increases take effect this month.

Taken together, the increased contributions from the BBC and its staff should extend the pension fund's surplus beyond the 2006-7 date when actuaries carrying out a valuation last year predicted it would run out.

Unlike many other blue-chip pension schemes, the BBC's pension fund still has more in investments than it needs to meet its obligations, despite the collapse in stock market share prices - the most recent valuation in April 2002 revealed that the fund was worth £6.23bn, giving it a surplus of £441m.

It was the existence of a surplus that allowed both BBC and staff to reduce their payments into the scheme in the mid-1990s.

However the actuaries carrying out the 2002 review also calculated that the underlying funding rate - the proportion of salary bill that would have to be paid in if no surplus existed - was 26.1%.

In other words, if the pension fund surplus were allowed to run out in three years, as projected, the current combined annual contribution of 9% of salaries (4.5% each from BBC and staff) would rocket overnight to more than a quarter of the wage bill. With staff contributions limited to a maximum of 7.5%, the BBC could have faced an immediate four-fold increase in its payments.

Even before the 2002 valuation, unions had begun questioning the BBC about the future of the fund once the surplus ran out. The phased increases which start this month will take the overall payment into the fund to 11.5% of the paybill, and extend the life of the surplus beyond 2006-7, but further increases could be necessary when the next actuarial review is conducted in 2005.

While financial advisers are hoping for a future improvement in investment performance - the BBC has been affected like other employers by poor returns over the last three years - it is unlikely that there will be any slowdown in improved life expectancy, the other factor which has strained the pension scheme recently.

With more than 50,000 members, either pensioners or staff at work, the BBC pension scheme is large enough to use its own internal statistics to calculate its liabilities, rather than using government actuaries' tables covering the whole UK population.

Contrary to the folklore myth of BBC staff expiring just years, or even months, after retirement, the scheme's data suggest that an employee leaving now at 60 years old could expect to live until 84 on average. Three years ago this figure would have been 83 years - a dramatic increase in actuarial terms over a very short time period, with a significant financial impact on a scheme with 19,600 pensioners, and 19,700 working staff.

Unfortunately for those pensioners, the BBC has also announced that future annual increases in their pensions will be strictly linked to inflation, with no discretionary rises above RPI. Although the inflation-linked formula is a welcome safety net, the results can look parsimonious in times of low inflation - last year's pension increase for example was less than 1%.

BECTU will continue to monitor the pension scheme's health until the next formal review in 2005, and if any further increases are needed in contributions will be pressing the BBC to accept its share of the burden.