Royal Mail workers given ultimatum on pension proposals

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Royal Mail has finalised its proposal for its future pension provision ahead of closing its defined benefit (DB) scheme to existing members next year.
The postal service is offering affected employees the choice between a DB "cash balance" arrangement and an improved defined contribution (DC) scheme.

The cash balance proposal, which was first floated in April, would see members guaranteed a lump-sum payment at retirement, based on total contributions of 19.6%. This could then be raised depending on investment performance. The scheme would also receive an additional 2% from the company to provide death in service and ill-health benefits.


Royal Mail said it is "one of few companies offering to replace one DB scheme with another" and said the lump sum approach was appropriate for its members, citing 97% of members giving up the annual income for a tax-free lump sum.

It added this approach would be funded by its current £400m annual pension contribution, with risk to the company "materially lower" than the current DB arrangement and a "manageable risk".

Alternatively, members could opt to join a new DC scheme with company contributions of 13.6%, which Royal Mail said "for some members, this could be a better option". This compares to the company's existing DC arrangement, which will see standard contributions raised by 1% in each tier, up to a maximum of 10%, from next April.

The cash balance proposal, a response to the Communication Workers Union (CWU) bid for a compromise risk-sharing scheme, has been marginally improved since it was first mooted. This includes by raising the company contributions from 12.6% to 13.6%.

Unite has now launched a consultative ballot on the proposal, with members able to respond until 7 August. Its officer for Royal Mail Brian Scott said the proposal was the best possible outcome in challenging conditions.

"We are not making any recommendations," he said. "We think it is important that Unite members have an opportunity to express an opinion on what is being put forward by the company.

"The latest position is an in improvement from the original proposal and through our discussions we have achieved these improvements. We have had many discussions with the company over the last few months and these have been difficult. However, the Unite negotiating team consider that what is on offer is the best achievable in the circumstances."

However, the CWU has already rejected the proposed arrangements. Deputy general secretary for postal Terry Pullinger said it was still too significant a cut to members' entitlements.

"It does not meet our aspiration of a wage in retirement pension scheme, but rather still promotes the conventional wisdom of a cash-out arrangement at the point of retirement," he said.

"While using elements of the CWU's proposed Wage in Retirement Scheme, it would still represent a significant shortfall in the pensions promise and it is not something that we are prepared to recommend to our members."

What is the CWU's Wage in Retirement Scheme?

The CWU had proposed a risk-sharing scheme, similar to defined ambition, named the Wage in Retirement Scheme (WINRS).

The proposal would have seen DB and DC members merged into a single pension scheme which guarantees a minimum wage in retirement but with inflation-linked increases would depend on investment performance.

This scheme would be predominately invested in equities, either in the UK or overseas, compared to the current 90% allocation to bonds.

The union said it had back-tested the proposed scheme over the past 21 years and found it would have "performed very well" and "smashed the life out of DC"

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"However, the CWU has already rejected the proposed arrangements. Deputy general secretary for postal Terry Pullinger said it was still too significant a cut to members' entitlements."