Defined Contribution 

Royal Mail workers propose hybrid DC-DB pension

Royal Mail workers propose hybrid DC-DB pension

The union representing Royal Mail employees has called for the firm to devise a new pension scheme that shares the risk between the business and the workers.

The call came two months after Royal Mail announced its intention to close its defined benefit scheme.

In January, the formerly publicly-owned company proposed closing the scheme to new accruals in 2018, with all future pension contributions going into a defined contribution scheme.

However, the Communications Workers Union refused to accept this deal, calling instead for a "new" style of pension fund that struck a balance between a DB scheme, where the employer takes the risk, and a DC scheme, where the risk falls on the member.

Terry Pullinger, deputy secretary general of postal at the CWU, told FTAdviser the new scheme would review investment performance once a year, and assess whether it could afford to increase pension payments in line with inflation.

He said the investment strategy would have a much higher allocation to equities than the current scheme has.

"The scale of the investment in equities is debatable, but it will be much more aggressive than the current strategy which is totally derisked," he said.

He added that he did not view DC schemes as pension schemes.

Mr Pullinger said he was not overly hopeful Royal Mail would meet the "moral challenge" of providing their workers with an income in retirement, saying he suspected they were more interested in removing the risk of a DB scheme from their balance sheet.

A Royal Mail spokesperson said the company was reviewing the CWU's proposal, alongside other proposals but said there could be "no certainty ... that we will proceed with the proposal".

"We continue to engage with our unions. No decisions will be made until we have considered all feedback and have had an opportunity to discuss this with our unions. We will write to members once a decision has been made," the spokesperson said.

The proposal comes as troubled DB schemes are increasingly finding unconventional ways to protect their members from falling into the Pension Protection Fund.

Last month former BHS owner Sir Philip Green reached an agreement with The Pensions Regulator to provide £363m for a new pension scheme for the members of the defunct BHS pension scheme.

The new scheme would have no sponsoring employer, prompting predictions so-called "zombie schemes" would become more common.

The CWU's proposal also followed the publication of a government green paper on the future of the DB sector, in which the government proposed reviewing the indexation of annual pension increases.

While the CWU claimed the hybrid pension model was new, pensions consultancy Hymans Robertson said similar models were used in the 1970s.

"Back in the 1970s DB pension schemes had these type of pressure release valves which successive layers of legislation have stripped away," Jon Hatchett, head of corporate consulting at Hymans Robertson, said.