The Co-op Good with Food...bad with pensions

With the Coalition Government and certain councils pushing for co-ops as the future model for public services the issue of pensions yet again rears its head.

Clearly co-operatives are not in a position to support ongoing staff pension arrangements. This makes outsourcing to co-ops just as risky as any other form of outsourcing. The workers pay the price for cut price public services.

It demonstrates beyond doubt why public service workers require the retention of the Fair deal on Pensions which sits in the balance pending a Government response to consultation which closed last month; www.usdaw.org.uk/newsevents/news/2011/jul/cooperativegroupproposes.aspx

USDAW reports that the Co-operative Group has announced proposals to close final salary pension schemes they inherited in takeovers by the end of September in order to consolidate staff pension provision into just two schemes.

In a consultation, the group is proposing to close eight final salary pension schemes inherited through recent acquisitions and mergers and instead offer staff membership of either their existing career average defined benefit scheme or a new defined contribution (money purchase) scheme.

Pension rights accrued to the date of closure will stay linked to future increases in earnings. Members of the schemes facing closure will be offered membership of the Co-operative Group’s PACE scheme, which provides pension benefits on a career average salary basis rather than final salary.

The group also proposes to increase employee contributions to the PACE scheme, from 6% to 8% of earnings from April 2012.

The Co-op also intends to launch a new money purchase section of the PACE scheme, ready for the introduction of auto-enrolment next year. The group’s start date for auto-enrolment is October 2012 and they have an estimated 55,000 employees who are not currently in any pension scheme and will be eligible for auto-enrolment.

The new money purchase section — provisionally called PACE DC — will have two levels. “Entry level” will mirror the new minimum contribution levels for auto-enrolment, with employee contributions starting at 1% in 2012 and rising to 3% by 2017 and employer contributions starting at 1% in 2012 and rising to 5% by 2017.

The “Upper level” is more generous and offers a double-matching employer contribution of up to 8%  for any employee who contributes 4% or more. Once auto-enrolled into the Entry Level, employees will have the opportunity to "trade up" into either the Upper Level or into the career-average salary section (PACE DB).

Sharon Ainsworth, national officer for shop and distribution workers’ union Usdaw, said: “The closure of any final salary pension scheme is always disappointing, but we welcome the Co-op’s ongoing commitment to their existing defined benefit scheme which is actually more generous than some of those earmarked for closure.”