Pensions Review in Telefonica UK

Telefonica is initiating a review of all of its pension arrangements.

The unions and Telefonica UK concluded a review of the company’s final salary pension scheme a year ago and the outcome was implemented last summer. During these discussions it became clear to us that Section 1 of the company’s defined contribution scheme fell short of the best standards for such a pension scheme. Whilst we appreciate that many employees had little disposable income to invest in a pension scheme, the large numbers that had opted not to take advantage of section 1 of the company’s scheme is a real worry to both Telefonica UK and ourselves.

More than 5000 Telefonica UK employees are members of one of the company’s 3 pension schemes but almost 6000 are not. It is reasonable to assume – and of great concern – that the overwhelming majority of those are making no pension provision to supplement a very inadequate state pension arrangement.

The previous Government was also concerned about the low numbers of employees that participate in occupational pension schemes, especially over the last few years as employers closed access to final salary schemes for new employees. Its response, which has been supported by the current government, has been to institute minimum standards for defined contribution schemes and to initiate a process known as auto enrolment which will affect Telefonica UK from March 2013.

This means that by March 2013 all employees who are not in a pension scheme will automatically be enrolled into the company’s section 1, defined contribution scheme or something similar. In essence all employees will be expected to pay into a pension scheme that is invested on their behalf at tax efficient rates which Telefonica UK will also contribute to. Employees will be allowed to opt out, but we hope that an improved scheme will help employees secure a better income in retirement and indeed better death in service benefits for their families.

Prospect’s aim will be to ensure that Telefonica’s section 1 scheme is improved to become a more attractive offering, which matches the best standards in the industry. We want all Telefonica UK employees so that all employees who are not in the final salary schemes see it as a good way to invest for retirement.

The company has also made it clear that it believes its final salary scheme is too expensive, despite the increases in member contributions resulting from last summer’s review. The company argues that the final salary scheme eats up 85% of its pensions’ costs, despite there being less than 2000 employees in sections 2 and 3 of its pension scheme. Whilst this may be true, the overwhelming bulk of this cost relates to commitments the company has already made and which cannot be reduced.  More of this will become clear over the coming months.

Our aim is to protect the valuable final salary scheme, upon which we have only recently reached agreement with Telefonica UK, for many more years to come at the same time as making the defined contribution scheme very much more attractive.

Telefonica UK has confirmed that existing final salary pensions that have been accrued are not in any way threatened by this review.

We will consult members about the progress of discussions.

Please click here to view final salary sections of the O2/Telefonica Pension Plan.