Defined Benefit  

Royal Mail row may force birth of 'defined ambition' schemes

Royal Mail row may force birth of 'defined ambition' schemes

The creation of "defined ambition" pension schemes could be pushed forwards by the long-running dispute between Royal Mail and its employees.

Last month, the Communication Workers Union announced both parties were discussing the creation of a collective defined contribution (CDC) scheme to solve the dispute over the closure of the defined benefit (DB) scheme, which has been rumbling on since last year.

Now it has emerged Royal Mail and the CWU are in talks with the government over triggering the legislation which would allow CDC schemes to come into existence.

Terry Pullinger, the CWU’s deputy general secretary, said has an agreement on the pension scheme is being drafted.

He said: "We will have a new pension scheme for all of our members. It will massively improve all of those thousands of people in the [defined contribution] DC scheme, it will improve their potential outcomes.

"Most of our young members are in that group and we are giving them a security in the future with their pension outcomes."

CDC schemes are also known as a form of "defined ambition" scheme and differ from DB schemes in that 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 DC plans, since they do not produce individual pension pots.

Instead they invest savings in a larger collective pot, which provides an income to individuals during their retirement.

But legislation will need to be introduced to allow Royal Mail to be able to a CDC scheme.

The Pension Schemes Act 2015 created by the Coalition Government defined "shared risk/defined ambition" or CDC as a distinct pension category but secondary legislation to bring them into effect was never introduced.

Mr Pullinger said: "The reason that it hasn’t been done this far is because no one has pushed for it. But we now are and it is crucial to resolving out dispute.

"There will be a period of transition until we go into that new scheme. During that period of transition, you will see when the agreement comes out, that we are even trying to be proactive in that period to make sure that we start this journey of improving pension provision for everybody."

Mr Pullinger said the CWU and Royal Mail were "on the cusp of something very special" which will give the union’s members all the security that they were seeking.

But he did not disclose a deadline for the negotiations to finish.

CDC schemes are already being discussed in Parliament, with the work and pensions select committee conducting a consultation on these schemes.

But specialists have warned that introducing the concept of CDC schemes in the UK will not solve the problem of DB pension funds being underfunded or high deficits.