The Communication Workers Union (CWU) is supporting workers in 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.
Terry Pullinger, CWU’s deputy general secretary, said today (25 January) at a conference in London: “If nothing has changed within a year, or we can't see it coming into the horizon, then we have to take a judgement to see if whether our dispute is actually resolved or not.”
Earlier this month 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.
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 defined contribution 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 revealed that “some people suggest that having the full secondary legislation could take up to three years” and that this is not an acceptable timeline.
He said: “Can you imagine we explaining to the members 'we have this deal but it might never arrive?'
“We are trying to work to see if whether there is a way that wouldn't require the full secondary legislation, and which would enable us to go forward.”
Royal Mail new scheme will cover the company’s 80,000 DB members as well as its 40,000 DC members, Mr Pullinger said.
He added: “We believe DC is failing people on a huge scale, [it will only work if] you got a few quid and you know how to move stocks and shares and watch that investment all the way through its journey.
“The true rationale for most working people is a wage in retirement.”
The proposal that is now at in a negotiators agreement phase – CWU members still need to vote on the plan - combines DB and CDC, Mr Pullinger explained.
He said: “The normal lump sum people generate in retirement - which most people take 25 per cent tax free of their pots - will be a DB element – and annually we will tell people how that will increase. The wage in retirement aspect will be built under CDC arrangements.
“Someone needs to go first in this field if we want to make a difference.”
FTAdviser reported earlier this week that the government believes now isn't the time to introduce the concept of CDC schemes in the UK, as the market "needs time and space to adjust to other reforms underway”.
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.
maria.espadinha@ft.com
