Tui Travel reviews pension ahead of auto-enrolment

Tui Travel is consulting about moving its primary trust-based defined contribution (DC) pension scheme to a contract-based arrangement.

The project, on which KPMG is advising, is part of its preparation involved ahead of Tui’s March 2013 auto-enrolment staging date.

Speaking at Employee Benefits Live, Tim Taylor, head of group reward at TUI, said the organisation considered between eight and 10 pension providers before selecting four for a beauty parade, which have been conducted over the last few months.

He said: “We will be coming forward with a final proposal, hopefully within the next few weeks. We are just working through the final details. We’re going to have one provider.”

Tui’s pensions comprise a mix of DC and defined benefit (DB) schemes for the group and its subsidiaries, which include Britannia Airways and Thomson Airways. Its DC schemes include Tui’s primary DC scheme, which has just under 2,000 scheme members, which is administered by Capita. There is also a Britannia Airways superannuation and life assurance scheme with 174 active members, another Tui scheme with 315 active members and other contract-based DC schemes with around 350 active members.

Its DB schemes include a UK pension scheme with 2,261 members contracted in, a Britannia Airways superannuation and life assurance scheme with 333 active members contracted in and a Thomson Airways pension scheme, which has 78 members contracted out.

Tui is also reviewing the contribution rates for its primary DC scheme as part of the consultation. The organisation currently makes contributions of between 5% and 10%, whereby the organisation pays in 5% or 10% for an employee contribution of 3% or 5% respectively, depending on employee seniority.

Taylor said: “We are going to make some changes as part of the consultation. There will be a standard 5% contribution, then [employees will have to contribute] 5% to get 5% or 5% to get 10%, depending on the level [of seniority].

“We tweaked it around a bit and just tried to make it a little bit more straightforward for people in terms of understanding.”

Taylor estimated that around 2,000 employees will qualify for the higher 10% employer contribution.

In terms of fund choice, he said Tui will initially auto-enrol all new joiners into a low-risk fund.

He added: “We have given the choice of funds that people can go into. It’s not about segmenting them, but giving them the choices, depending on what their attitudes to risk might be or where they are [with their retirement plans].”

Taylor said he expects the employee opt-out rate to be around 30%, but added: “We’ve worked on 70% staying in, so around 30% [opting out], but we’ve based that on everyone else’s thinking, so who knows?”

So far, Tui has so far communicated with employees about auto-enrolment via post and followed up with online frequently-asked-question (FAQ) sessions. The organisation will also use its trade unions, which include Unite, as well as employee consultation groups comprising employee representatives, as conduits for communicating its pension strategy.

A gap analysis is also underway to ascertain the capabilities of TUI’s existing payroll system, which is provided by Northgate. Taylor said: “They’ve done quite a lot of development; we’re just testing it at the moment in terms of auto-enrolment.”

He added that a decision is yet to be made about whether the organisation requires middleware and, if yes, exactly what it requires.