Royal Mail presents government with alternative paths to CDC

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Royal Mail Group has proposed amending the rules governing money purchase pension arrangements as an easier and more practical way to introduce collective defined contribution (CDC) schemes into the UK.

In a letter to Frank Field, chair of the parliament’s Work and Pensions Select Committee, Jon Millidge, group HR director at Royal Mail, said the company wanted to explore “how we could introduce a collective scheme with the minimum set of legislative changes, given the constraints on parliamentary time”.

The Department for Work and Pensions, the government department responsible for pension policy changes, has indicated that has not yet prioritised secondary legislation to allow the creation of CDC schemes in the UK.

One possible alternative solution might be amendments to the 1993 Pensions Scheme Act under the powers granted by the 2011 Pension Act, Millidge wrote in his letter.

He said: “Our proposal would enable such a pension scheme to be treated for legislative purposes as ‘money purchase’ and so exempt from the various ‘defined benefit’ employer funding and debt requirements which would otherwise apply to a plan which pays pensions from its own assets, rather than backing each member’s pension with an annuity.”

In February, Royal Mail – in partnership with the Communication Workers Union – announced its intention launch the UK’s first private sector CDC plan, subject to a change in legislation. The move came in the face of opposition from the union to plans to close the company’s defined benefit pension scheme.

In March, pensions minister Guy Opperman told a Work and Pensions Select Committee meeting that as yet it was too early to “assess the contents” of Royal Mail and CWU’s joint proposal.

However, he added: “We are minded to assist, but at the same stage I don’t want to give any cast iron guarantees, as this is still the very early stages. If it is the case that we are able to progress this, then we would wish to assist in that.”