Here is the news; Whitbread bosses are buying off the authorities by injecting £3380m into their DB pension scheme, kicking it into notional surplus. If you want to read the press release- it’s here in Professional Pensions.
The Whitbread Group Pension Fund has been handed a one-off contribution of £380m following Whitbread’s sale of Costa to The Coca-Cola Company.
The cash injection will “significantly de-risk” the defined benefit (DB) scheme’s investments, the company said, and will replace previously agreed deficit recovery contributions (DRCs) totalling £326m over the next four years.
Meanwhile, Costa will be released from its obligations to the 38,000-member scheme, while Coca-Cola will not face any responsibility as just a handful of Costa employees were part of the DB scheme, which closed to accrual in 2009.
The deal was agreed with the scheme’s trustees and represents just under 10% of the £3.9bn proceeds from the sale of the company, which was first announced last August.
It is likely to bring the scheme into a surplus position, at least on an accounting basis. In its most recent results, the company said the scheme had an IAS 19 deficit of £162m as of 30 August last year. On a technical provisions basis, the deficit was £450m as of 31 March 2017.
Trustee chairman Keith Jones said: “This is a good outcome for our members and provides the fund with enhanced security over the long term.”
A “good outcome” for Whitbread bosses – not so good for Costa staff.
I won’t go into the niceties of the accounting argument but will focus on the issues relating to people.
Firstly, de-risking the pension scheme will mean more money in bonds , less in growth assets and takes Whitbread a step closer to buy-out with an insurer or self -sufficiency.
That’s good news for the remaining members of the scheme but it means nothing to the interests of the people that triggered this action – the employees of Whitbread’s Costa Division who will shortly be employees of Coca Cola. Witness
“just a handful of Costa employees were part of the DB scheme, which closed to accrual in 2009”.
The handful will of course be the senior managers of Costa who are being bought off – and at what cost.
Whitbread employees who aren’t in the DB scheme – including Costa employees risk being short changed on Government incentives which mean they could be paying 25p more in the pound on their workplace pension contributions.
This is because the Whitbread Defined Contribution Occupational Pension scheme requires the low paid employee to contribute on a net-pay basis. As Whitbread’s pension manager once said on this blog “no tax – no tax relief”. It’s not an issue for the DB plan as no-one contributes to that anymore – it’s a DC issue and it’s being ignored
Had Whitbread set its scheme up on a relief at source contribution basis, low paid employees would have benefited from a Government subsidy on their contributions of 25p in a pound.
Alternatively, Whitbread could have done what many other companies have done , and used a net-pay scheme like NEST or People’s Pension or an insurance company GPP to give its staff the benefit of the incentive on offer.
Whitbread ignored the problem and carry on enrolling low paid staff into its net pay pension scheme – it’s not good enough – it’s depriving low paid staff of contribution subsidies they would receive if they paid under relief at source.
It’s not good enough.
One law for DB – one for the rest
As far as I can see from the Prof Pens article/ Whitbread press release, not one penny goes to making good the extra costs in contribution made by DC employees caught in the “net-pay anomaly”. These people – who are every bit as much people as those in the DB scheme, are getting a fraction of the pension benefit of their luckier DB pensioned colleagues.
Far from being pampered with a de-risked scheme, the DC members are taking on 100% of the pension risk in retirement – MORTALITY, SEQUENTIAL LOSS – the lot.
But not one penny of the £380 bn injection goes to help DC members who are simply ignored in this pension settlement.
So what is going on?
I call on the Pensions Regulator to explain whether it is requiring Whitbread to make good the deficits in contribution to the DC scheme, or whether it is putting pressure on HMRC to do so.
Or does the Pensions Regulator consider that the workplace pensions of the Costa baristas are of secondary value to the DB pensions of the Whitbread DB scheme?
Is this settlement about people or politics?
Who is standing up for the interests of the low paid Costa staff who are being short-changed on their pension contributions?
Where is the Pensions Regulator on this?
Where are the unions on this?
Where is Jack Dromey and the Labour party on this?
Where is the PLSA on this (remembering that one Whitbread Pension Manager is a former PLSA Chair).
Where is the PMI on this?
Why is there so little public interest in the fate of the Costa workforce leaving Whitbread – and their rights as members of the Whitbread Pension scheme?
Why is it left to this blog to point out that these members are a few thousand of the 1.2m people earning less than £12,500 from their jobs but enrolled into a work-place pension because in one or more pay periods, they earned more than £833.33 in one monthly pay period*
*or weekly or fortnightly equivalent.
To be fair – it’s more than this blog..
It’s the Times who have picked up on the Costa issue and more widely on the net pay anomaly. They actually highlighted the issue – you can read their pieces on it here
It’s not just the Times, it’s Ros Altmann and a campaigning group led by Adrian Boulding and NOW and including many good people who care that the 1.2m get an immediate and lasting solution to a problem which will rapidly accelerate in April when employee contributions rocket from 3 to 5% of salary.
A DC plan can be in deficit – as I wrote at the time the Costa deal was announced. I called then on Whitbread to treat its baristas fairly.
On Thursday, Ros and her team of campaigners will meet in parliament again – I will be calling for a similar statement to be made by Whitbread on its DC deficit – to the statement about DB. The DC statement will be more meaningful as it will impact the people affected by the sale of Costa to Coca Cola – Costa employees.
The cost of restituting the incentives not paid to Costa Staff, enrolled into the Whitbread DC plan will be considerably less than £380bn.
My suggestion is that Whitbread pay up – making a one off contribution into every impacted Costa staff member (and if this is no longer – restitute direct to former staff – you know their bank accounts!).
I also recommend that Whitbread keep the receipts! They have a claim on HMRC for this money – money that was promised in the 4+3+1 formular published when auto-enrolment was launched. That promise was not 5+3 and the Government incentive – the +1 was promised to all savers – not just those in relief at source schemes.
Come on Whitbread – cough up for your Costa staff and hound HMRC for the money back.