The negotiations have been complex and difficult but we have achieved an outcome that maintains final salary pensions for all existing Section 2 and 3 members, allows personal choice and gives everyone access to independent financial advice in making their decision.

The terms of the draft agreement in summary and a copy of the full agreement can be read by clicking on the appropriate link opposite.

It is important to note the following points.

• All service up to 1st May 2011 is protected. If you take Option 1 or 2 then your benefits up to 1 May 2011 will continue to be linked to your final salary at the point you leave the Plan or take your pension. If you take Option 3 then your benefits up to 1 May 2011 will be revalued each year as if year in the same way as anyone else who leaves the pension.
• Tax relief is available on pension contributions and so any increase in payments will be offset to some extent by tax relief. For example, if you earn £20,000 and take Option 1 the monthly increase in pension costs of £66.67 would fall to £53.33 for a basic rate taxpayer.
• If you take Option 3 and were subsequently made redundant over the age of 50, the pension benefits that you would have received under Sections 2/3 will be paid as a cash equivalent.
• Under Option 3, the 21% and subsequent 10% payments would become a contractual entitlement.

Independent Financial Advice

If the changes are implemented O2 has agreed to pay for all Section 2 and 3 members to have access to independent financial advice. This would allow everyone to make their decisions on an informed basis. Given the seriousness of leaving Section 2/3, anyone taking Option 3 will have to show they have taken independent advice.

Flexible Benefits and Added Years

If the changes are implemented O2 has agreed that individuals will be able to opt out of commitments they have made regarding flexible benefits or the purchase of Added Years. This could allow you to use this income to help fund increased pension costs.

Future Changes

While we cannot guarantee that these changes will be the last that the Company ever make Sections 2/3, Prospect has secured a statement from O2 that it is fully committed to the principle that any future changes be made with the consent and agreement of employees and their representatives. In addition, the Company has stated it will not use any future TUPE transfers to other employers for the purposes of making changes to the membership of the pension plan.

Union Recommendation

Prospect understands that these are significant changes which may increase your pension costs and alter your future plans. However, we have exhausted the negotiating process and are recommending that you vote in favour of the changes in the forthcoming consultative ballot for the following reasons.

• At a time of great uncertainty over pensions, the Agreement maintains final salary benefits.
• We have ensured that individuals would have a choice over future options.
• Everyone will have access to independent financial advice.
• The changes only affect contributions and accrual rates. There are no other changes. For example, the normal pension age will remain at 60; pensions in payment will continue to be linked to RPI. *Taking into account the government announcements, legal advice and the current rules of the Plan, we understand that the CPI measure will be the effective measure of inflation for the revaluation of deferred benefits and RPI will remain the measure used for pensions in payment. This change does not flow from the negotiations on pensions.
• Given the challenges that the reorganisation will bring, it is important to resolve this issue now.
• O2 has given commitments that it is fully committed to the principle that any future changes be made with the consent and agreement of employees and their representatives.
  

Next Steps

Prospect will be balloting all affected members on these proposed changes in the New Year.