Royal Mail launches consultation on DB closure

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Royal Mail has started a formal consultation process on closing its "unaffordable" defined benefit (DB) scheme to future accrual from April 2018.

The plan, which was first announced in August last year, could affect around 90,000 employees.

The scheme reported a surplus of £1.77bn on an IAS 19 accounting basis as of 31 March 2016, with assets of £7.44bn and liabilities of £5.67bn.

However, costs of running the scheme are expected to more than double in 2018, which is driving the desire to close the scheme to future accrual in order to cap costs.

The company estimates its contribution rate would increase from 17% of pensionable pay to over 50% by April 2018, costing more than £1bn each year. This is significantly more than the £290m cash that Royal Mail generated in the 2015/16 financial year.

The current proposal would see active members transferred into a new defined contribution (DC) scheme on 31 March 2018, and each granted a £750 one-off payment which could be put into the DC fund or taken as cash.

The consultation will run in tandem with a 2018 pension review process involving Royal Mail and its unions, the Communication Workers Union (CWU) and the Communications Managers Association (CMA) branch of Unite.

Human resources director Jon Millidge said the proposal offered a fair solution which balanced member security and good quality benefits.

"We know how important pension benefits are to our people," he said. "We are sorry that their current arrangements will soon not be affordable. "We believe our proposal would be a fair outcome; it is the best option available. It is a very competitive pension package compared to the industry and other large employers.

"It is about continuing to provide sustainable, good quality pension benefits and as many high quality jobs as possible. We will carefully consider all viable options put forward by members or their representatives."

CWU deputy general secretary for postal Terry Pullinger said the union was prepared to take industrial action if the company acted against its members' interests.

"We move from shadow boxing to the ring and negotiations will now begin in earnest, and the CWU is fully committed to developing an agreed solution which maintains the pension promise of a wage and dignity in retirement," he said. "However, any attempt to introduce any unagreed change by the business would be met with an industrial action ballot."

The consultation with members and trade unions will close on 10 March. Royal Mail said no final decision would be made until the two processes concluded, and would not take effect before April 2018 at the earliest.