Late last year, Vodafone announced that it was embarking on consultations with employees about a proposal to close its Defined Benefit (DB) pension scheme, transferring all employees to its existing Defined Contribution (DC) scheme. The DC scheme would also be enhanced, with higher employer contributions than are currently paid, applying to both existing DC scheme members and to those transferring from the DB scheme to the DC scheme.

Many Connect Sector members who at the moment are in the DB scheme expressed deep concern about the proposals. It seemed highly likely to them that this proposal from Vodafone would be severely detrimental. Many of you approached the union about this.

Vodafone in fact gave the union advance warning of its intentions - they advised us a day or two in advance of the announcement - and accepted that it's employees, our members would want us to make a submission to them about the proposals. We have made a presentation to Vodafone, and I attach a copy. If you go into the PowerPoint presentation and view it in Notes pages, you will see not only the presentation itself but also some of the background.

We have put two alternative proposals to Vodafone for their consideration. One is for a DC arrangement which however is significantly more generous than Vodafone's current proposal. The second is for a series of changes to the DB scheme which would reduce risk and cost but which would however maintain the principle of defined benefits.

We cannot simply ignore the proposals or sensibly argue that they should be dropped...

Most defined benefit pension schemes, certainly in the private sector and also increasingly in the public sector, are coming under pressure. Few are now open to new employees and an increasing number are being closed to existing employees. This is primarily because the financial pressures upon them are now acute. People are living longer and financial returns on investments are falling. Doing nothing is not, for the great majority of companies, a rational option.

However...

That said and acknowledged, it is the union's firm view that employers (including Vodafone - a highly profitable and successful company) have a responsibility to maintain the long-term promise they have made their employees to provide decent pensions. The union would always advocate a rational response to proposals such as those put forward by Vodafone but we would not accept that this means putting up with severe detriment.

We have therefore tabled two alternative proposals which each ensure that decent pensions would still be available, although both proposals clearly involve some disadvantages for employees.

The two options

We have put two distinct alternatives to Vodafone. The first proposal is for a DC scheme, but one where the employer contribution rate is set at a value which, based on reasonable and realistic assumptions about investment returns, longevity, salary growth and so on, would be likely to generate broadly the same value of pension as the existing DB scheme in respect of future service. This would be a costly option for Vodafone - probably more costly than their existing proposals. Nevertheless this is an approach we recently agreed with an employer where the union has recognition (Steria) - so, it can be done where there is a will to do it. What's in it for Vodafone? This proposal transfers risk to employees. Nothing is certain where a DC scheme is in place as pension is always dependent on how much is paid in, but also on both investment returns and annuity costs, both of which vary.

The second option is for a DB scheme - but one where the benefits have been modified (and reduced - lets be clear about that) to reduce both cost and risk. This is the approach the union agreed with BT in its major review of pensions at the end of 2008. Again, then, an approach that is realistic and tried and tested.

We now await Vodafone's response

In line with their commitments to consult, we have put these proposals to Vodafone, together with a recommendation that they set up a small team - comprising both lay reps from the union and the union's leading pensions negotiator, to talk these proposals over. We await their response which we will share with members.

Do you have questions or comments?

We recognise that this is a lot to take in. If you have questions or comments, put them to us. We would also be more than happy to discuss these proposals with you, and to talk to you generally about the pensions review. We could do that in face to face meetings or via conference calls. Just get in touch by emailing [email protected].