Royal Mail has warned that there could be industrial action if it is unable to launch a collective defined contribution scheme because of legislation, and an alternative agreement cannot be reached.
Publishing its half-year results today, 15 November, Royal Mail said it was “making good progress” with the pension elements of its agreement with the Communication Workers Union (CWU).
“We are working closely with the CWU to secure the introduction of the UK's first CDC scheme. We were pleased to see the government's recent publication of the public consultation on the introduction of CDC schemes. This is an important step forward in our campaign to allow us to offer a CDC scheme for over 140,000 UK employees as soon as possible.
“We may be unable to obtain the necessary legislative changes to implement the UK's first Collective Defined Contribution (CDC) pension scheme as agreed with the CWU. If alternative arrangements cannot be agreed, this may lead to industrial action,” it stated.
The Royal Mail Pension Plan (RMPP), its defined benefit scheme, closed to future accrual on 31 March 2018, which it said ensured the avoidance of a £1.25bn cash contribution per annum. Its total contributions, in respect of all pension schemes, is around £400m per annum.
Following the closure of the RMPP, Royal Mail put in place transitional arrangements and implemented a new Defined Benefit Cash Balance Scheme (DBCBS), and an improved Royal Mail Defined Contribution Plan (RMDCP). RMPP members automatically started building up DBCBS benefits from 1 April 2018 (unless they opted to join the improved RMDCP instead) together with eligible RMDCP members who opted to join.
The DBCBS guarantees members a minimum lump sum at age 65, and is being accounted for as a DB scheme. It will aim to provide increases to the lump sum each year, depending on investment performance.
“An IAS19 deficit of £32m is shown on the balance sheet. The scheme is not in funding deficit and it is not anticipated that deficit payments will be required. The DBCBS will be subject to triennial valuations,” Royal Mail said.
Royal Mail has made contributions at 15.6 per cent (£147m) of DBCBS pensionable pay in respect of the scheme. Members will contribute 6 per cent (including pension salary exchange).
With regards to the RMPP, it said the pre IFRIC 14 accounting surplus of the RMPP at 23 September 2018 was £3,152m, comprising assets of £9,542m and liabilities of £6,390m. The pre IFRIC 14 accounting surplus has reduced by £98m in the period, as the increase in discount rate has had a greater impact on assets than on liabilities.
“This is because the scheme's hedging arrangements are designed to maintain its funding position, which is currently 149 per cent on an accounting basis. After the IFRIC 14 adjustment, the accounting surplus of the RMPP was £2,049m at 23 September 2018. This is an accounting adjustment with no cash benefit to the company,” the report stated.
The company also revealed it has completed a buy-in for the Royal Mail Senior Executives Pension Plan (RMSEPP), and the triennial valuation, as at 31 March 2018, has been completed. The scheme had an actuarial surplus at 30 September 2018 of £10m, compare to 31 March 2018 £36m. The RMSEPP closed in December 2012 to future accrual and the company makes no regular service contributions. However, a final deficit payment of £1m will be paid per annum for the period 1 April 2018 to 31 March 2025 in respect of death-in-service lump sum benefits and administration expenses.
In September 2018, the RMSEPP trustees purchased a further buy-in policy of insurance in respect of its remaining pensioners and deferred pensioners. Prior to the buy-in, the scheme had an IAS 19 surplus of £74m and a funding surplus of £36m. The buy-in reduces both the funding and accounting surpluses to £10m, but significantly reduces the risk that further contributions could be required from the company.