Defined Contribution  

Royal Mail looks to create hybrid pension scheme

Royal Mail looks to create hybrid pension scheme

Royal Mail and the Communication Workers Union (CWU) are discussing the creation of a collective defined contribution (CDC) scheme to solve the current pensions dispute.

This is one of the recommendations of a report prepared by professor Lynette Harris, who has mediated talks between the postal company and the union under dispute resolution procedures.

Earlier this year, the UK postal operator announced it would be closing the Royal Mail Pension Plan, its current defined benefit (DB) scheme, to future accruals from next year.

Following union opposition, the company was offering members the choice of joining either a DB cash balance scheme or a defined contribution scheme.

In October, the company won an injunction to block a two-day strike by its workers on the grounds that the Communication Workers Union (CWU) - whose members voted in favour of industrial action - had not entered into a dispute resolution mechanism involving an external mediator, as required under a prior agreement.

Terry Pullinger, CWU’s deputy general secretary, said in a video on the union’s website that there is now “a far more philosophical agreement with the employer as to how take things forward”.

He said: “We’ve got to deal with the detail. As a massive example, the employer as now accepted that we will develop one pension scheme for all our members.”

CDC schemes are also known as a form of "defined ambition" scheme and differ from defined benefit (DB) schemes, since they do not guarantee certain incomes in retirement.

Instead, CDC have a target or "ambition" amount they will pay out, based on a long term, mixed risk investment plan.

These schemes also differ from the traditional defined contribution (DC) plans, since they do not produce individual pension pots. They invest savings in larger collective pots instead, which then provide an income to individuals during their retirement.

Mr Pullinger said that the new plan will be a wage in retirement scheme, with “an element of defined benefit guaranteed, and that there will be an element of shared risk”.

He added: “But it will be targeted to genuinely produce a pension in retirement for people. It will not be a scheme that simply cashes out the moment you retire. That is a significant shift in any standards.”

However, for Royal Mail to be able to create a CDC scheme, there will need to be legislation introduced in the UK.

The mediator report suggests that Royal Mail and the CWU should establish a pensions forum.

This forum “will have responsibility for lobbying the government to make the necessary legislative and regulatory changes so that a CDC scheme can be established, and for overseeing its governance,” the report said.

Mr Pullinger said: “Politicians can drag their heels, we’ve got all of the things that are going on with Brexit, but we are now jointly connecting with people to try to ensure that we drive through that legislation as quickly as possible to enable our new scheme as we develop it and agree it.”