Higher Benefit Scale

The Trustee manages the day to day operations of the Plumbing & Mechanical Services (UK) Industry Pension Scheme (the “Scheme”) and is made up of employer and union representatives and two professional pension trustees.

The Scheme closed to future benefit accrual on 30 June 2019.

Now that the Scheme has closed to future benefit accrual, the Scheme will continue to pay benefits earned before 30 June 2019 but:

• Employees have not built up any further benefits or pay any further contributions to the Scheme since 30 June 2019. No new members will be able to join the Scheme.  The Scheme is now referred to as ‘a closed scheme’.
• There are certain other changes to the death benefits payable from the Scheme, as summarised in the key benefit changes section.
• Employers must auto enrol employees into an alternative pension arrangement that, if applicable, meets the Joint Industry Boards’ National Working Rules.

Please read this carefully because it contains important information about your benefits in the Scheme now that the Scheme is closed.

You should also read the information from your employer about the alternative pension arrangement they plan to use if the Scheme closes.

The Scheme is very large with assets of over £2 billion and over 35,000 members, including around 3,000 contributing members who are building up new benefits.  The Scheme currently has over 360 participating employers.

Every three years, the Scheme Actuary carries out a financial health check for the Scheme, which is called an ‘actuarial valuation’.  The health check aims to answer two questions:

1. Are the Scheme’s assets sufficient to pay the benefits already promised to members?
2. Are future pension contributions sufficient to cover the cost of new benefits earned in the future?

The good news is that the Scheme Actuary’s calculations show that the Scheme has enough money to cover the benefits members have already built up.  However, because the investment returns the Scheme expects to receive in future are so low, the cost of providing new benefits has gone up significantly.  This means that the contribution rates paid by employers and employees need to increase significantly.

In response to this, the Trustee and the Constituent Organisations have considered different options such as reducing or changing the benefits that employees build up in future or increasing the contributions that employers and employees pay.

When changes to the Scheme are required, these require the agreement of the three Constituent Organisations and the Trustee.  The Constituent Organisations are:

• the Association of Plumbing & Heating Contractors;
• the Scottish & Northern Ireland Plumbing Employers’ Federation;
• Unite the Union.

Over the winter, employers are consulting their employees about the Trustee’s proposal to close the Scheme.  Your employer will write to you separately to tell you about the alternative workplace pension arrangement they plan to use for you from 30 June 2019 if the Scheme closes.  Your employer should give you certain information about your new pension arrangement, including:

• how it works
• the pension contribution rates for you and your employer
• your investment options
• your expected retirement benefits
• the benefits payable if you become too ill to work or die
• any charges that could be deducted from your contributions and investment funds

It is important to note the following:

1. Your Scheme benefits already built up to the point of closure are protected by law and by the Scheme’s rules. 
2. All benefits will be preserved and revalued each year in line with the Scheme’s rules. 
3. Benefits already being paid to pensioner members and their beneficiaries are not affected by this proposal.

Legislation requires employers to consult affected employees for a period of 60 days to allow you sufficient time to consider the proposal, understand how it affects you and to allow you to respond with questions or comments if you choose to do so.

You will find answers to commonly asked questions here.

If you are represented by a Union, you may wish to contact them for help on how the Scheme closure affects you.

The Scheme Actuary has told the Trustee and Constituent Organisations that using a prudent set of assumptions, the Scheme is expected to have enough money to provide all the future expected benefit payments for benefits built up to the most recent valuation date, which was 5 April 2017.  This is known as being ‘fully funded’.

However, using prudent funding assumptions, significant increases are required in the contribution rates that employees and employers must pay to maintain the current level of benefits.  Examples are set out in the table below:

Benefit Scale	Contribution Rates	Current	Required
H2 Scale	For employees For employers Total	6.5% 13.0% 19.5%	11.3% 22.6% 33.9%
H3 Scale	For employees For employers Total	8.3% 16.6% 24.9%	13.0% 26.0% 39.0%
H4 Scale	For employees For employers Total	9.7% 19.4% 29.1%	14.8% 29.6% 44.4%

The Trustee, the Constituent Organisations and participating employers believe the contribution increases required would be unaffordable for many employees and employers (even if they were shared differently), which is why the Trustee is considering closing the Scheme.

The Trustee and Constituent Organisations have considered and at this stage discounted the following alternative options:

• Changing the 2:1 contribution sharing ratio: This option was not chosen as it was felt that even if employees paid a greater share of the cost, the level of contributions required were still likely to be unaffordable to many employees and employers.
• Reducing the benefits provided: This option was not chosen as it was felt the level of retirement benefits that could be provided by maintaining current contribution levels would not be sufficient.
• Introducing a defined contribution section: New defined contribution arrangements can be expensive to set up and run.  This option was not chosen because following investigation it was not considered financially viable for the Scheme to operate.

The table below summarises the Scheme’s key benefits and how they would change for contributing members if the Scheme closes to future benefit accrual from 30 June 2019.

You will find some benefit illustrations at the bottom of the page to help you understand how your retirement benefits might change if the closure goes ahead.

Benefit	Status	Current	After Closure
Member pension	Change	Pension credits continue to build up in the Scheme	No further pension credits will build up in the Scheme
Member pension	No change	Pension credits revalue before Normal Retirement Date in line with Scheme rules	Pension credits revalue before Normal Retirement Date in line with Scheme rules
Spouse's pension*	Change	50% of member’s pension (minimum of £22 a month)	50% of member’s pension (no minimum)
Children's pension*	Change	Payable if a member who is paying contributions dies (up to a maximum of four children)	None payable
Incapacity pension	No change	Unreduced member pension, subject to Trustee discretion	Unreduced member pension*** , subject to Trustee discretion
Lump sum on death	Change	H2 Scale: 3 x Earnings**** H3 Scale: 3.5 x Earnings**** H4 Scale: 4 x Earnings****	Return of member pension contributions with interest. Please note this is likely to be significantly less than the death benefit payable while you are a contributing member.
Lump sum on retirement	No change	Members can choose to give up pension in exchange for a tax-free lump sum	Members can choose to give up pension in exchange for a tax-free lump sum

Please note that the above table is intended to be a guide only and your entitlement is conferred by the Scheme’s Rules. In the event of any inconsistency with the above table, the Rules will prevail.

* No spouse’s is payable for any pensionable service on the 2017 Benefit Scale

** No children’s pension is payable for members on the 2017 Benefit Scale

*** While you work for your Scheme employer

**** If you die on or after Normal Retirement Date, the lump sum will not be less than the pension that would have been payable if you had retired immediately before your death and survived five years, plus the maximum lump sum you could have taken had you retired immediately before your date of death.

Your employer must give you sufficient information to help you understand how your pension benefits might change. Your employer should consult with you for at least 60 days and the consultation process should be completed by 31 March 2019. A final decision will not be taken by the Trustee or the Constituent Organisations until employer and employee feedback has been fully considered in April 2019.

Whatever is decided, the Scheme will continue to pay the benefits that members have already built up and the Trustee will work with the Constituent Organisations, participating employers and members to balance the complex and unpredictable factors that affect everyone saving for retirement.

Example 1

Jack currently earns £30,000 a year. He has built up credits of £12,000 a year on the H2 Benefits Scale.

Scheme closure would not affect the benefits that Jack is currently entitled to, other than the lump sum that would be paid to Jack’s dependants if he were to die before age 65 and the pension payable to his children as outlined in the Scheme Rules. Currently, his dependants would get a lump sum of £90,000 and his children would receive a pension of £900 a year. However, if the Scheme closes, Jack’s dependants would only receive a lump sum of £17,000 on his death and his children would receive no pension.

If the Scheme remains open, Jack’s contributions would have to increase from £1,600 a year to £3,400 a year.

Benefit	Impact	Current	After Closure
Member pension	No change	£12,000	£12,000
Spouse's pension	No change	£6,000	£6,000
Children's pension per child	No children's pension	£900	-
Incapacity pension	No change	£12,000	£12,000
Lump sum on death	Lower lump sum	£90,000	£17,000
Lump sum on retirement*	No change	£56,100	£56,100

 

Example 2

Jamie currently earns £45,000 a year. He has built up credits of £22,000 a year on the H2 Benefits Scale.

Scheme closure would not affect the benefits that Jamie is currently entitled to, other than the lump sum that would be paid to Jamie’s dependants if he were to die before age 65 and the pension payable to his children as outlined in the Scheme Rules. Currently, his dependants would get a lump sum of £135,000 and his children would receive a pension of £1,400 a year. However, if the Scheme closes Jamie’s dependants would only receive a lump sum of £27,000 on his death and his children would receive no pension.

If the Scheme remains open, Jamie’s contributions would have to increase from £2,400 a year to £5,100 a year.

Benefit	Impact	Current	After Closure
Member pension	No change	£22,000	£22,000
Spouse's pension	No change	£11,000	£11,000
Children's pension per child	No children's pension	£1,400	-
Incapacity pension	No change	£22,000	£22,000
Lump sum on death	Lower lump sum	£135,000	£27,000
Lump sum on retirement*	No change	£102,800	£102,800

*will reduce pension on retirement

Example 1

Daniel currently earns £51,000 a year. He has built up credits of £18,000 a year on the H3 Benefits Scale.

Scheme closure would not affect the benefits that Daniel is currently entitled to, other than the lump sum that would be paid to Daniel’s dependants if he were to die before age 65 and the pension payable to his children as outlined in the Scheme Rules. Currently, his dependants would get a lump sum of £178,500 and his children would receive a pension of £1,800. However, if the Scheme closes Daniel’s dependants would only receive a lump sum of £35,000 on his death and his children would receive no pension.

If the Scheme remains open, Daniel’s contributions would have to increase from £3,200 a year to £6,600 a year.

Benefit	Impact	Current	After Closure
Member pension	No change	£18,000	£18,000
Spouse's pension	No change	£9,000	£9,000
Children's pension per child	No children's pension	£1,800	-
Incapacity pension	No change	£18,000	£18,000
Lump sum on death	Lower lump sum	£178,500	£35,000
Lump sum on retirement*	No change	£84,100	£84,100

 

Example 2

David currently earns £32,000 a year. He has built up credits of £22,000 a year on the H3 Benefits Scale.

Scheme closure would not affect the benefits that David is currently entitled to, other than the lump sum that would be paid to David’s dependants if he were to die before age 65 and the pension payable to his children as outlined in the Scheme Rules. Currently, his dependants would get a lump sum of £112,000 and his children would receive a pension of £1,100 a year. However, if the Scheme closes David’s dependants would only receive a lump sum of £28,000 on his death and his children would receive no pension.

If the Scheme remains open, David’s contributions would have to increase from £2,000 a year to £4,200 a year.

Benefit	Impact	Current	After Closure
Member pension	No change	£22,000	£22,000
Spouse's pension	No change	£11,000	£11,000
Children's pension per child	No children's pension	£1,100	-
Incapacity pension	No change	£22,000	£22,000
Lump sum on death	Lower lump sum	£112,000	£28,000
Lump sum on retirement*	No change	£102,800	£102,800

*will reduce pensions at retirement

Example 1

Connor currently earns £32,000 a year. He has built up credits of £17,000 a year on the H4 Benefits Scale.

Scheme closure would not affect the benefits that Connor is currently entitled to, other than the lump sum that would be paid to Connor’s dependants if he were to die before age 65 and the pension payable to his children as outlined in the Scheme Rules. Currently, his dependants would get a lump sum of £128,000 and his children would receive a pension of £1,300 a year. However, if the Scheme closes Connor’s dependants would only receive a lump sum of £25,000 on his death and his children would receive no pension.

If the Scheme remains open, Connor’s contributions would have to increase from £2,300 a year to £4,700 a year.

Benefit	Impact	Current	After Closure
Member pension	No change	£17,000	£17,000
Spouse's pension	No change	£8,500	£8,500
Children's pension per child	No children's pension	£1,300	-
Incapacity pension	No change	£17,000	£17,000
Lump sum on death	Lower lump sum	£128,000	£25,000
Lump sum on retirement*	No change	£79,400	£79,400

 

Example 2

Callum currently earns £75,000 a year. He has built up credits of £11,000 a year on the H4 Benefits Scale.

Scheme closure would not affect the benefits that Callum is currently entitled to, other than the lump sum that would be paid to Callum’s dependants if he were to die before age 65 and the pension payable to his children as outlined in the Scheme Rules. Currently, his dependants would get a lump sum of £300,000 and his children would receive a pension of £3,000 a year. However, if the Scheme closes Callum’s dependants would only receive a lump sum of £22,000 on his death and his children would receive no pension.

If the Scheme remains open, Callum’s contributions would have to increase from £5,440 a year to £11,100 a year.

Benefit	Impact	Current	After Closure
Member pension	No change	£11,000	£11,000
Spouse's pension	No change	£5,500	£5,500
Children's pension per child	No children's pension	£3,000	-
Incapacity pension	No change	£11,000	£11,000
Lump sum on death	Lower lump sum	£300,000	£22,000
Lump sum on retirement*	No change	£51,400	£51,400

*will reduce pension at retirement