Defined Benefit  

Royal Mail workers approve pension deal

Royal Mail workers approve pension deal

Postal workers have voted in favour of a deal to set up the UK's first collective defined contribution (CDC) pension scheme.

Members of the Communication Workers Union (CWU) voted last week (28 March) by a margin of nine to one in favour of the pensions, pay and working conditions package announced by Royal Mail in February.

The agreement includes the closure of its defined benefit (DB) pension fund to future accrual on 31 March 2018.

Terry Pullinger, CWU deputy general secretary, said: "Now the agreement is signed, the hard work begins on ensuring this comprehensive, long-term deal is implemented in full across Royal Mail Group."

Since new legislation will be needed to create a CDC scheme, Royal Mail will introduce transitional pension arrangements from 1 April until such a pension fund can be created.

This will consist of a DB cash balance scheme and an improved defined contribution (DC) plan.

"The ongoing annual cash cost of pensions will continue to be around £400m," the company said.

The Department for Work and Pensions (DWP) is working with Royal Mail on introducing a CDC scheme.

The government is looking for the least disruptive way to introduce these schemes and will consider 2011 legislation to phase in the new rules needed.

CDC schemes do not guarantee certain incomes in retirement but have a target amount they will pay out, based on a long term, mixed risk investment plan.

These schemes differ from traditional DC plans in that they do not produce individual pension pots.

Instead they invest savings in a large collective pot which provides an income to workers during their retirement.

The Pension Schemes Act 2015 created by the coalition government defined CDC as a distinct pension category - referred to at the time as defined ambition - but secondary legislation to bring them into effect was never introduced.

David Brooks, technical director at Broadstone, said the approval of the agreement by CWU members was a "landmark moment" in the journey towards the establishment of the first CDC scheme in the UK.

He said: "This will further force the government into providing the legislative and regulatory space for the scheme to be established.

"It seems inevitable that the government will permit the creation of the CDC scheme to support the Royal Mail and CWU in their aim of providing something more than a DC solution without the costs associated with a DB scheme.

"It is an exciting moment and many pensions professionals will be enthusiastically watching how this develops over the coming months."