Postal union's pensions plan doesn't deliver what it claims

[rmchat112]

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After months of toing-and-froing, the Communication Workers Union is now balloting Royal Mail employees on industrial action. Will posties strike over their pensions?

As part of privatisation in 2012, the government took on Royal Mail’s £38 billion pension liabilities, £28 billion assets and £10 billion deficit, so Royal Mail is liable only for the £6 billion of pension promises it has made since then. Like most other UK companies, it is replacing its expensive defined-benefit pension, costing about 30 per cent of salary, with a much cheaper defined-contribution pension, at around 13 per cent of salary. Closing the DB plan also removes the risk that Royal Mail has to pay for deficits if assets underperform or if members live longer than expected.

Royal Mail is also offering a “Cash Balance” plan, guaranteeing that members get their cash contributions back (a very limited guarantee), with the possibility of an unspecified bonus.

The union has been pushing what it claims is a new type of pension: the “Wage in Retirement”, with “risk-sharing” between employees and employer, for all 140,000 Royal Mail employees, including 50,000 in the present DC plan.

Although Royal Mail has rejected this idea, could the “new” union pension really work as a halfway house between DB (with the employer taking all the risk) and DC (the employee taking all the risk)?


The union pension would guarantee one sixtieth of salary a year, like the present DB pension, with a slightly higher retirement age, linked with the state pension age, and lower annual pension increases, linked with the consumer prices index, not the retail prices index. However, unlike the present DB pension, the new pension would not guarantee any annual inflation increase in the pension earned up to retirement: a £500 pension earned age 35 could still, in theory, be £500 at retirement, much less adjusted for inflation.

Despite its claims, the union’s “new” type of pension is not new. It is merely a less generous, and therefore cheaper, DB plan, with Royal Mail still on the hook to guarantee a pension for life, exactly what it wants to avoid.

And here’s the rub. Although this new DB pension is cheaper, the union wants Royal Mail to take much, much more investment risk.

The existing DB pension plan, with a high proportion of matching bonds, has low investment risk for Royal Mail, but the new plan would hold a much higher proportion of assets in equities, property and infrastructure, not low-risk bonds. The union claims that these assets would outperform liabilities over time and that the surplus would be used to give discretionary inflation increases; in practice, members would get pretty much the same as the present pension.

Despite the union’s claims, there is no “risk-sharing” between employees and employer. Rather, it is “heads-we-win, tails-you-lose”. A surplus means that members may get a discretionary increase; a deficit means that Royal Mail must make deficit contributions. Each discretionary increase would ratchet up the value of pension liabilities that Royal Mail is guaranteeing, but the increases could not be clawed back if there was then a deficit.

Even if Royal Mail did agree to a less generous DB plan, holding equities, why should it use any surplus to give increases to members, rather than simply reducing its annual cash contributions for new pension promises? Discretionary increases would hit Royal Mail’s annual profits and, if the new pension ended up being the same as the existing pension, as the union expects, the overall cost would be identical.

The union’s proposal is smoke and mirrors, based on faulty economics. It is a fully-fledged DB pension, with Royal Mail taking on much more investment risk and with employees, not the company, benefiting from any surplus. Rather than pushing a half-baked “new” DB plan, the union should concentrate its energies on getting Royal Mail to pay the highest possible annual contribution to the new DC plan.

•John Ralfe is an independent pensions consultant

[11aaa222]

"The union’s proposal is smoke and mirrors, based on faulty economics. It is a fully-fledged DB pension, with Royal Mail taking on much more investment risk and with employees, not the company, benefiting from any surplus. Rather than pushing a half-baked “new” DB plan, the union should concentrate its energies on getting Royal Mail to pay the highest possible annual contribution to the new DC plan."

Very informative article I was reading in a very well respected national newspaper, the above is the final paragraph, and I would tend to agree and go along with this,

I have voted with the CWU evrytime but this ballot has to be the hardest, as I fundamentally do not agree with some of the aspects the CWU are fighting for.

The reality is we are now a business first and foremost and any such profit making enterprise and venture must aim to make sustainable profits and which if do not not make there will be no business let alone a pension. Secondly we are now in different times there are a dozen other logistics and courier firms willing to take our business and customers, we really need to be sensible about this.

Moya was very clear at the beginning a DB scheme is not sustanable in the consulation period and the reason for closure of scheme was it places to much risk on the company balance sheet and not sustainable. This was very clear from the start, so then why did the union with there pensions expert dream up a WINRS scheme when all it is is a DB scheme in all but name, which from the very start Moya was clear that she didn't want, this was made very clear surely if this is the number 1 requirement the cwu should have taken this into account and come up with something that met the specifications that RM wanted and fought for the biggest contributions.

It is the equivalent of going to a restaurant and asking for Curry and rice and the waiter coming back with fish and chips.

The other aspect I am not happy with is that the public sector pay cap is at 1%, in comparison what we have been offered this year and from 2018 is a very decent offer in the current climate and of course we would all like more, but I am just being realistic!

[XCHpostie]

What well respected newspaper would that be as a matter of interest?

[Spedley]

I totally disagree. If the letters business is shrinking then there is no need to pay me less or destroy my conditions, just employ less people over the coming few years. The DB scheme isn't working because RM have stopped paying into it. Everyone who started since 2008 no longer pays in and yet all those already retired are still drawing from it. The figures say it will cost a fortune because RM are dividing it between the fewer and fewer people and not paying what they should be paying.
The health of the business is not my concern, that is the job of higher management. The health of my household is my concern and I cannot survive on the cuts that RM want to make. I have two choices, fight against profit taking and stripping of the company's assets and employee's conditions or face uncertainty looking for a job elsewhere. At the moment the first option is the best but if Moya breaks RM then I'll have to leave as a last resort.

Vote YES or leave.

[SpacePhoenix]

just employ less people over the coming few years.

Don't know about DOs but in MCs that would near enough guarantee every shift failing every day

[Spedley]

just employ less people over the coming few years.

Don't know about DOs but in MCs that would near enough guarantee every shift failing every day

... unless mail dropped by 5% per year like they say it is? Surely you can do less mail with less staff? If the business is shrinking then employ less, don't have the same number of employees and pay them less.

[SpacePhoenix]

just employ less people over the coming few years.

Don't know about DOs but in MCs that would near enough guarantee every shift failing every day

... unless mail dropped by 5% per year like they say it is? Surely you can do less mail with less staff? If the business is shrinking then employ less, don't have the same number of employees and pay them less.

In a MC generally any member of staff can be expected to sort either parcels or flats & letters as needed. All shifts goto the wire now as it is, with less staff we'd be failing all the time. Overall (parcels, flats & letters combined), i don't really think that traffic has dropped, if anything it might have increased slightly

[Spedley]

We have about 15% less staff in our DO than when I started. I do a lot more work than I used to but then I have a van and don't carry a lot of weight any more. Efficiency is definitely up in our DO since van sharing came in. No need to pay us less but if they do they will have to employ someone who isn't as good as me (probably anyway :) )

[daveyeff]

Or S.O.B. in disguise. Never mentioned the extra 200.000 extra they've paid into her pension either.....i know who is responsible for the smoke and mirrors...and it is not the CWU.

[Spedley]

That seems to be the RM line ... count yourself lucky to get £20 so take £15 instead.

[jetblack]

However, unlike the present DB pension, the new pension would not guarantee any annual inflation increase in the pension earned up to retirement: a £500 pension earned age 35 could still, in theory, be £500 at retirement, much less adjusted for inflation.

Absolutely. If the stock markets of the world tank for the next 31 years without fail, then that would be highly likely (of course, under the DC scheme you'd come out with zero under those conditions BTW).
However, looking at long term historical returns from stock markets I'd say that the chances of this happening are extremely low - Hell freezing over kind of low. Consequently, wether the argument above bares any consideration at all is moot.

The existing DB pension plan, with a high proportion of matching bonds, has low investment risk for Royal Mail, but the new plan would hold a much higher proportion of assets in equities, property and infrastructure, not low-risk bonds.

Er, thats right. The reason interest rates are at 0.5% (and so giving shite returns on bonds/Govt. debt) is so that business flourishes, ergo stocks and shares and dividends.
The CWU proposal takes us back to a balance between bonds and equities that the trustees thought prudent not so many moons ago (what ? 20 years ago ?).

Discretionary increases would hit Royal Mail’s annual profits

the union should concentrate its energies on getting Royal Mail to pay the highest possible annual contribution to the new DC plan.

Rubbish.

And this comes from a pensions consultant ?

Not someone I'd be paying for advice thats for sure.

[LouBarlow]

I think the OP missed the newsflash in regard how much profit the company makes per year.

[BeamishStout]

"The union’s proposal is smoke and mirrors, based on faulty economics. It is a fully-fledged DB pension, with Royal Mail taking on much more investment risk and with employees, not the company, benefiting from any surplus. Rather than pushing a half-baked “new” DB plan, the union should concentrate its energies on getting Royal Mail to pay the highest possible annual contribution to the new DC plan."

Very informative article I was reading in a very well respected national newspaper, the above is the final paragraph, and I would tend to agree and go along with this,

I have voted with the CWU evrytime but this ballot has to be the hardest, as I fundamentally do not agree with some of the aspects the CWU are fighting for.

The reality is we are now a business first and foremost and any such profit making enterprise and venture must aim to make sustainable profits and which if do not not make there will be no business let alone a pension. Secondly we are now in different times there are a dozen other logistics and courier firms willing to take our business and customers, we really need to be sensible about this.

Moya was very clear at the beginning a DB scheme is not sustanable in the consulation period and the reason for closure of scheme was it places to much risk on the company balance sheet and not sustainable. This was very clear from the start, so then why did the union with there pensions expert dream up a WINRS scheme when all it is is a DB scheme in all but name, which from the very start Moya was clear that she didn't want, this was made very clear surely if this is the number 1 requirement the cwu should have taken this into account and come up with something that met the specifications that RM wanted and fought for the biggest contributions.

It is the equivalent of going to a restaurant and asking for Curry and rice and the waiter coming back with fish and chips.

The other aspect I am not happy with is that the public sector pay cap is at 1%, in comparison what we have been offered this year and from 2018 is a very decent offer in the current climate and of course we would all like more, but I am just being realistic!

I am not an actuary and neither I suspect are you. But in the spirit of debate have you listened to the WinRS presentation by Hilary Salt who is an actuary I believe https://www.facebook.com/Thecommunicati ... 668222042/? You need to spend 20+ mins going through it and maybe repeating it to really understand what WinRS is about. And let us not think for one moment that WinRS does have at least two obvious drawbacks for the individual. If you see the presentation you will know what they are.

No-one (even from the union) is suggesting that the current DB could carry on without serious financial implications for RM but at least the CWU have come up with an innovative pensions proposal which is not going to cause the financial problems the current one will if it continues.

[RobertT]

In my opinion RM rejected WinRS because it is still a DB scheme and however good it sounds on paper, there is always the potential for nasty financial shocks in the future. From a business point of view I can understand that!

Even if there are no yearly inflationary increases with WinRS, massive pension promises/liabilities would build up for RM.
Our money will still be invested and subject to stock market fluctuations. So there’s still the chance of a deficit at some point and so extra money for the company to find.

But even if the liabilities and assets worked out perfectly, there’s still the question of life expectancy.
Nobody can predict for sure when people are going to die. If everyone lives for just 6 months more than expected, that would put a huge extra strain on the finances of any DB pension scheme. Especially the size of the RMPP.

I’m not on RM’s side and I’m certainly not Moya in disguise – I’m a normal postie with an opinion!
I stand to lose annual pension just like everyone else and I would love to be proved wrong on this! But WinRS is the total opposite to what RM want! They want a scheme where they know what their outgoings are upfront and there’s no potential for extra costs at some point in the future.
Whether you like it or not, any DB pension scheme has the potential for that, while DC or Cash Balance does not.

The argument really is should RM or indeed any other employer be responsible for ensuring an individual has a decent retirement?
It’s a matter for debate! Personally I believe employers have a duty to provide some pension provision, in fact the law says they have to. But ultimately it’s up to the individual to ensure their own provision is enough.

For the record I will be voting YES for strike action.

[jetblack]

The argument really is should RM or indeed any other employer be responsible for ensuring an individual has a decent retirement?

That is the question Robert. But an ancillary to that is that if the employer doesn't (through deferred pay) provide for a decent retirement, then the burden falls on the state.
It has to be said also that the burden of risk, with the CWU proposal,to provide for a decent retirement income is shared between the employer and the employee.
I think we all know why the employer would prefer all the risk to be on the employee - but is it right that the employer, to whom we give our working lives and who harness their profit from our labours, should bare no responsibility at all ?

For the record I will be voting YES for strike action.

For the record, so will I