HISTORY

The MNRPF started in April 1978. Prior to that there had been no industry-wide pension scheme of any significance which enabled Ratings to save for their retirement.

For every year of pensionable service, the MNRPF provided 1/60th (called the accrual rate) of average revalued pensionable salary (this is basically your pensionable salary averaged over your period of contributory membership and increased by National Average Earnings over that period to maintain its value - however see your copy of the rules for the full definition). The pension was level (i.e. no increases) and payable from 65 for men or 60 for women. On death in service a lump sum of 1 times salary was payable and widows' pensions were payable on death before or after retirement. Members paid contributions of 5% of pensionable salary and employers paid 8% of pensionable salary. The MNRPF was contracted out of the State Earnings Related Pension Scheme and instead members were provided with a Guaranteed Minimum Pension (GMP) from the MNRPF and paid lower National Insurance contributions.

Over the next 10 years, surplus funds enabled a number of additional benefits to be introduced. These included credits for up to 8 years service prior to the MNRPF starting in April 1978, changing the retirement age to 62, the introduction of widowers' pensions, increasing the death in service lump sum from 1 to 2 times salary and improving pensions for members who retire due to ill health. Following much increased claims for ill health pensions, the additional benefit granted on ill health retirement was scaled back in 1990 and stopped altogether in October 1993 following the disclosure of a small funding deficit. In the following years, the financial position stabilised and in 1996 the MNRPF was approximately in balance.

An adjustment was made to the accrual rate, changing it to 1/80th but applying only to pension built up for service from 1 January 1998. However, that pension increased in retirement in line with the Retail Prices Index (up to 5% pa).

In the meantime, the Pensions Act 1995 had introduced a stringent funding test called the Minimum Funding Requirement (MFR). Any deficit on the MFR basis had, by law, to be made good by additional contributions over a specified period. In July 1997, the Government removed the ability of pension schemes to reclaim tax on dividends paid from investments in UK shares, which added a further strain to the financial position. Furthermore, economic conditions had changed from the high inflation, high investment returns of the 1970s and 1980s to low inflation and low investment returns. General economic predictions were for investment returns to continue at a relatively low level for many years to come.

All these factors led to a re-appraisal of the MNRPF and to proposals for its re-structuring developed between the employers' representatives and the RMT. These included measures to improve finances, but also included closing the MNRPF so that no further service counted towards pension. These proposals were put to a Court of Law and were agreed by the Court in February 2001. The main provisions were as follows:

• Closing the MNRPF to further accrual of pension on 31 May 2001.

• Establishing a new scheme (the Merchant Navy Ratings Pension Plan - MNRPP) starting on 1 June 2001. This is a defined contribution scheme and is completely separate from the MNRPF having its own trustee company and administrators.

• Putting in place a Schedule of Contributions under which Current Employers are required to pay a total of £13 million each year effective from 2000 and continuing until 2006. Voluntary payments towards this total may also be received from some employers who are no longer Current Employers.

• Allowing members who were contributing at the date of closure to have their pension revalued in line with National Average Earnings (in line with what might have happened if the MNRPF had not closed) and to give such members who joined the MNRPP (and some schemes which are alternatives to MNRPP) an option to select a lower rate of revaluation in return for a higher contribution to the MNRPP (or alternative scheme).

• Making provisions for a Current Employer to leave the MNRPF, but only in circumstances where the MNRPF is satisfied that liabilities which might otherwise have fallen on that employer in future have been fully met and that the relevant members' benefits are adequately secured by transfer to a pension scheme run by the employer.

During the last few years the Trustee Board has changed the Fund's investments from being predominately in company shares (equities) to being predominately in fixed interest investments (loans from Government or companies). This generates more predictable levels of income for the MNRPF and also protects the assets against falls in equity values (i.e. falls in the stock market). However, because they are more secure, fixed interest investments tend to produce a lower return over the long term than might be expected from equities.