Minister for pensions and financial inclusion Guy Opperman yesterday (26 February) met with Royal Mail and union leaders to discuss plans to overhaul the post service's retirement fund.
However, Mr Opperman warned “there will be no action taken on this [by the government] unless both Royal Mail and the Communication Workers Union can reach and maintain an agreement going forward”.
Speaking at the Trades Union Congress (TUC) pensions conference 2018 today (27 February) in London, Mr Opperman stressed yesterday’s meeting “was very positive, but both parties have a long way to go yet”.
Royal Mail will close its defined benefit (DB) pension fund to future accrual on 31 March, after it reached an agreement in principle with its trade union in February to create a collective defined contribution (CDC) scheme in its place.
CDC schemes differ from defined benefit (DB) pensions in the sense they do not guarantee certain incomes in retirement.
Instead, CDC schemes have a target amount they will pay out, based on a long term, mixed risk investment plan.
Unlike traditional defined contribution plans, 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.
The Pension Schemes Act 2015 created by the coalition government defined CDC as a distinct pension category, but secondary legislation to bring them into effect was never introduced.
The pension minister is also reluctant to support them.
He admitted: “Some people say that there can be potential advantages to being a member of a collective scheme, when compared to a defined contribution scheme, especially if the members want a regular income without the high costs of an annuity or the risks associated with drawdown products.”
But in December, Mr Opperman argued, in a letter to Alex Cunningham – at the time still Labour shadow pensions minister – that risk sharing is an area that the government will "revisit once there has been an opportunity for that to happen", and that the market “needs time and space to adjust to other reforms underway”.
Today at the TUC conference, he said: “Whilst it is still early days, and as we all know nothing in pensions is simple and straightforward, I'm hopeful that this work clearly shows that this government, working with employers, with unions, and others, can work together where there is a share commitment to deliver good outcomes for members in retirement.”
The Work and Pensions select committee launched an inquiry on these type of schemes in November, since they have the "potential to address some of the concerns that policy makers and the public have about the current pension offer".
In a first hearing about these plans, which occurred last week in parliament, MPs were warned that CDC schemes might not be fit for pension freedoms.