GMB members accept revised pension offer from Historic Royal Palaces

GMB union members working at the Tower of London and Hampton Court Palace voted to accept the revised pension offer after their employer uplifted its payments into the defined contribution scheme.

DB members will now get an ongoing employer contribution of 14 per cent in exchange for making a minimum employee contribution of 1.5 per cent of pensionable salary, according to HRP. To compensate for the loss of guaranteed income, they will have the choice between an immediate one-off payment of 17.5 per cent of pensionable pay into their DC pot, or a one-off payment of 25 per cent of pensionable pay in April 2025.

Existing DC members will also get a 2 percentage point uplift in the employer contributions they receive as a result of the DB closure.

The dispute started at the beginning of last year, when HRP announced its decision to close the DB scheme to future accrual without consulting members of the scheme. GMB members went on strike on three separate days in late 2018 and early 2019.

In January this year, HRP presented an initial revised offer to GMB members, which the union conceived as unsatisfactory, stating that members were losing out.

Michael Ainsley, regional organiser for the GMB union, says: “I am bound to say that if HRP had engaged with us properly at the beginning we may not have ended up with industrial action.”

HRP’s has approximately 1,000 full-time staff, according to its accounts. There are 121 employees in the £54.5m DB scheme, which is 10 per cent of HRP’s workforce. The vast majority work at the Tower of London or at Hampton Court Palace.

Mr Ainsley claims the scheme's membership is falling fast enough that "there wasn’t a real need to do this, because in a few years' time there will be hardly anyone left”.

Finding a compromise

The GMB has not been able to prevent the closure of the DB scheme and members are disgruntled, saying they have lost a far superior pension. However, after negotiations they have gained traction.

“It eventually came down to how long people wanted to continue fighting, and it’s not a preferred option for anyone,” Mr Ainsley says.

John Barnes, chief executive of Historic Royal Palaces says: “We are pleased to have been able to reach an agreement with the trade unions and defined benefit scheme members at Historic Royal Palaces. All parties involved worked hard to secure a resolution to the dispute, which has culminated in a comprehensive compensation package that reflects the different stages scheme members are at in their careers, along with their proximity to retirement."

“The closure of the scheme at the end of March will enable us to increase employer contributions across the board at HRP by 2 per cent,” he says.

Most HRP employees are in a DC group personal pension plan, where members are required to pay a minimum of 2 per cent of their pensionable salary and HRP will contribute between six and nine per cent.

However, Mr Ainsley said the amount of money saved from closing the DB scheme is insignificant: “When you look at the amount of money being saved for the palaces' upkeep and employment it is quite negligible really, and they could have found that money elsewhere.”

HRP’s total income for 2017-2018 was £98,186m. The charity’s total expenditure for 2017-2018 due to the cost of raising funds, charitable activities and DB pension scheme net interest cost was £95,103m. As of March 31 2018, the HRP pension plan was £4.9m in deficit.   

Charity DB schemes are financially unsustainable

A report published by consultancy Hymans Robertson in May 2018found that 58 per cent of charitieshave closed their DB schemes to future accrual.

Dinesh Visavadia, a director at Independent Trustee Services, who also has experience as a charity trustee, says it is increasingly difficult for charities to justify the risk of an open DB scheme.

Mr Visavadia says: “It is expensive to source expertise to manage that risk. It is unfair to people who make donations to charities. The regulatory environment around DB pensions has not been drafted with charities in mind; they have been drawn up with commercial corporates in mind."

The regulatory environment around DB pensions has not been drafted with charities in mind

Dinesh Visavadia, ITS

Hugh Nolan, director at consultancy Spence & Partners, says charities have tried to protect people from scheme closure for a long time.

“Eventually, the most paternalistic employer is driven to a position where they say, 'We can’t keep affording this', and with a charity, there is a sense the money is there for a purpose, and when your staff cost becomes so excessive because of the extra burden of pensions, it is hard to justify that amount,” he says.

Rob Dales, head of corporate consulting at JLT Employee Benefits, says charities should be taking control of their pension funding.

“Most charities rely on donations, and the last thing they want to see in the press is information that those donations are going towards the pension deficit.”

Mr Dales says charities need to have a better understanding of their assets and investment, liability reduction strategy, and set in place a plan to bring them into balance, so they are not reliant on charitable donations.

However, charities do have some advantages over the private sector.

"In particular, compared to corporates, charities don’t tend to have significant levels of debt, and they certainly don’t pay dividends," says Alistair Russell-Smith, head of corporate DB at Hymans Robertson. "So there is not the same risk of 'covenant leakage' in the way that there is with a corporate."