O2 Pension Review update

Following our communication dated 25th November 2010, discussions with O2 have continued.

The focus has been on the arrangements for the Defined Benefit or final salary sections – Sections 2 and 3 and the increased cost and risk from continuing the pension in its present form.

In negotiations with O2 Prospect has been working with the CWU and we have reiterated our clear determination to keep the Defined Benefit sections open both now and in the future and we have discussed with the company different ways this might be achieved.

The options that have been discussed so far would bring about significant changes to the way the pension operates and could change your future plans, but no agreement has been reached. Prospect has also asked O2 to clarify its plans for the future of the Defined Benefit pension.

In order to give you some kind of indication of the options under discussion these are outlined below, and could be introduced either on their own, or in some combination. It is important to note that any changes to the Defined Benefit pensions would not affect benefits that have already been built up. These are protected by the rules of the pension scheme and the law.

Increasing member contribution rates

Currently everyone in Sections 2 and 3 pays 6% of salaries into the Plan with O2 paying 26.7%. The member contribution rates could be increased to reduce the cost the company.

Any increase would be offset to some extent as individuals get tax relief on pension contributions.

Changing the speed at which benefits build up

At the moment benefits build up – or accrue – at different rates in the defined Benefits sections as follows:

· Section 2 – 1/60th of salary for each year worked

· Section 3 – 1/80th of salary for each year worked. Section 3 members also get an automatic cash lump sum on retirement.

Reducing these accrual rates would slow down the rate at which future pension is built up and so reduce the cost to O2.

Offering individuals the option to move the Defined Contribution section

O2 believes that some members might want to switch voluntarily to the defined contribution section if they were given a financial incentive to move, or because of the forthcoming changes to the tax arrangements which may affect a small number of high earning employees. Leaving the Defined Benefit scheme would be a very serious step for any member to take and should only ever be done following independent advice.

Flexibility

In recognition of the fact that members have different individual priorities and financial circumstances, any changes could involve giving individuals some element of choice over their own future pension arrangements. We have secured assurances that if any changes to the scheme are made members will be entitled to free Independent Financial Advice paid for by O2.

Next Steps

Prospect will continue to keep you informed of developments and will ballot members before any changes are agreed.