London Overground: New Pension Arrangement Explained
London Overground is changing the way employees pay contributions into its pension system (the RPS) by introducing an arrangement known as ‘salary sacrifice’. Under the old system, you were paid your salary with your pension contribution deducted from it. Under this new system, your salary is reduced by the amount of the pension contribution and the employer pays your contribution direct to the fund. What’s the difference? The company hands over less money to the government in National Insurance contributions and so saves a lot of money - and you save a bit too, but nowhere near the amount saved by LOROL.
RMT is not particularly keen on ‘salary sacrifice’, as it undermines the National Insurance fund, from which state pensions are paid.
However, it does mean that in most cases (read on to find out if you are one of the exceptions), you will pay less money into your pension while still getting the same amount out when you retire. So the union is prepared to accept the arrangement, so long as the employer gives some of the money it is saving into the pension fund.
The good news is that due to strong representation from RMT, LOROL is the first (and so far only) railway employer to agree to do this, and is paying 20% of the approximately £100,000 per year it is saving into the pension fund. We would prefer it to pay even more, but it is a start - and LOROL’s decision is putting pressure on other railway employers to do likewise.
Under this new arrangement, workers will save around 9.4% of their pension contributions. The only catch is that if any of your pension is linked to the state (earnings-related) second pension, then that would be reduced, so your pension would be lower. The majority of us are in the Railway Pension Scheme, which is contracted-out from the state second pension, so this catch should not apply to us.
But it may apply to you if:
- you are in a very low-paid grade and supplement your basic wage with lots of overtime and shift premiums
- you are not a member of the RPS or another contracted-out pension scheme
If either of these apply to you, please seek advice before deciding whether to take part in the ‘salary sacrifice’ arrangement.
Participation in the Salary Sacrifice arrangement is not compulsory and indviduals who wish to opt out should contact management.