Defined Benefit  

Royal Mail proposes hybrid defined benefit pension scheme

Royal Mail proposes hybrid defined benefit pension scheme

Royal Mail has proposed launching a new type of defined benefit scheme for its workers, in response to union pressure over the closure of it current DB scheme.

The announcement follows a proposal for a hybrid scheme, put forward by the Communication Workers Union earlier this year, that would have seen employee and employer share the risk.

In an announcement today (28 January), Royal Mail confirmed the current DB scheme would close to future accrual on 31 March 2018.

In place of the DB scheme, the company said it was considering offering employees two alternatives: a standard defined contribution scheme; and a "defined benefit cash balance scheme".

Royal Mail described the DB cash balance scheme as follows: "From 1 April 2018 the DB cash balance scheme would provide members with a guaranteed lump sum at retirement.

"Members would be guaranteed to receive the total value of the contributions paid towards their lump sum up to retirement. In addition, discretionary increases would be applied up to retirement, subject to the investment performance of the scheme. Once applied, these increases would also be guaranteed."

Such a scheme would likely be considerably less generous than the one proposed by the CWU, which would have seen members receive an income for life rather than a lump sum.

But Royal Mail said the CWU's proposal was too risky for the company to accept.

"We very much appreciate the care that the CWU applied to its proposal and we have agreed to meet them to discuss it further," Royal Mail stated. 

"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."

FTAdviser was unable to reach a CWU spokesperson for a reaction to Royal Mail's proposal.

However, a spokesperson for Unite, which also represents Royal Mail employees, stated that ongoing talks with the firm were "complex and difficult".

The union's officer for the Royal Mail Brian Scott said: "At this stage, it is not possible to say if an agreed solution can be found, but we are committed to making every effort to ensure our members have decent pensions’ provision in the future.

"As we have previously stated, if we don’t achieve a satisfactory outcome, we can't rule out an industrial action ballot on this issue. However, we will be consulting with our members closely at every stage over the coming weeks."