The cost of Royal Mail’s defined benefit pension scheme is predicted to reach £1.3bn a year, figures from its latest valuation show.

Royal Mail still plans to close the scheme in its current form to future accrual on 31 March 2018, however, it said it will “continue to work closely with our unions on a sustainable and affordable solution for the provision of pension benefits after 31 March 2018”.

Based on figures from 31 March 2015, the valuation shows assets worth £6,153m and liabilities of £4,451m. Royal Mail, which is in a dispute with unions over the closure of its DB scheme, said that using these assumptions the cost of benefits being accrued each year would be £1.3bn, based on market conditions at the end of March 2017.

Royal Mail currently contributes £400m a year to the scheme but under the new figures estimates that the scheme’s surplus would run out in 2018, from which the company would have to double its current contributions. It reiterated that it believes this would be unaffordable.

It said that the company contribution rate will remain at 17.1 per cent of members’ pensionable pay until 31 March 2018 and that no deficit correction payments are required as the scheme was in surplus at the valuation date.

Last week Royal Mail revealed proposals for a new DB cash balance scheme that will provide members with a guaranteed lump sum at retirement. It said the scheme would build on the proposal put forward by workers union, CWUM and addresses some of the employee feedback it has received during a consultation.

This scheme would be set up in a new section of the Royal Mail Pension Plan. It would guarantee a lump sum at retirement and would allow members to receive the total value of the contributions paid towards their lump sum up to retirement. Moreover, discretionary increases would be applied up to retirement, in line with the investment performance of the scheme. Once applied, these increases would also be guaranteed, Royal Mail said.

The newly proposed scheme would include elements of the CWU’s proposal, without some of the “inherent risks” that the CWU scheme would have created, the company added. However CWU described it as a “mutant DC proposal” and that Royal Mail are “premature and arrogant” to suggest it.

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