Royal Mail has proposed a new defined benefit cash balance scheme that will provide members with a guaranteed lump sum at retirement.

Following a member-wide consultation on the Royal Mail Pension Plan which ended 10 March 2017, Royal Mail confirmed on 13 April 2017 that the current DB scheme will close to future accrual on 31 March 2018, subject to trustee approval.

The DB cash balance scheme will build on a proposal put forward by workers union, the CWU and addresses some of the employee feedback Royal Mail received during the 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.

Following a review of the DB cash balance scheme with actuarial advisers, Royal Mail has noted that the risk to the company would be considerably lower compared to the current pension plan. In addition, it has said that it will manage risk even further through an appropriate investment strategy and a proportion of company contributions would be kept as a pension risk reserve.

“As part of our 2018 Pension Review we have been working with the CWU and Unite/CMA on a sustainable and affordable solution for some time,” Royal Mail stated.

“We very much appreciate the care that the CWU applied to its proposal and we have agreed to meet them to discuss it further. However, at the moment we do not believe the CWU proposal, in its current form, meets the fundamental principles underpinning our 2018 Pension Review. These are: sustainability, affordability and security.

“We believe that the Defined Benefit cash balance scheme would be a fair proposal that compares favourably with the retirement benefits offered in our industry and by other large UK employers. We will continue to discuss the future of the Plan with our unions CWU and Unite/CMA. We will write to Plan members once more decisions have been made.”

Other plan members would have the option to join a defined contribution scheme as an alternative to the newly proposed scheme.

In response to Royal Mail's update, CWU deputy general secretary (Postal), Terry Pullinger said: “Royal Mail have released a Press Statement today which is both premature and arrogant. It is an example of the closed-minded, idea redundant mentality that the CWU are up against. It beggars belief that the company really do consider that this mutant Defined Contribution proposal is in any way an adequate response to the work and imagination that the Union have put into our Wage in Retirement Scheme proposal.

“The CWU have pragmatically responded to the pension challenges of our time and do not believe that the concept of a wage in retirement Defined Benefit arrangement is dead. We have been growing intellectual and moral support for our efforts and we will not be deterred in our campaign to ensure dignity and security in retirement for our members. In the face of conventional wisdom, dogma and shareholder self-interest, we become more resolute and this negotiation is far from over.”

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