Royal Mail offers to draft new pension regulations

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Postal service’s proposal is part of efforts to end staff dispute over retirement benefits

Royal Mail has taken the unusual step of offering to write the regulations needed to help end a long-running pension dispute with tens of thousands of staff.

The UK’s privatised postal service made the proposal in a meeting with government officials in December, according to people with knowledge of the situation.

Royal Mail’s decision to close a generous retirement fund on the grounds that it was no longer affordable almost led to a nationwide strike by staff belonging to the Communications Workers Union last year, with the walkout only thwarted by a court injunction.

But a resolution is now in sight with the two parties in the final stretch of protracted negotiations over pensions, pay and working practices.

A key element they have agreed upon is the creation of a so-called “collective defined contribution” pension scheme: a new kind of retirement fund that was envisaged under 2015 legislation but which is yet to be tried out in the UK.

It is being held up because the secondary legislation needed to provide the detailed legal framework for such pension schemes has not yet been drafted by the government — a process that could take months.

Royal Mail confirmed its offer to the Department of Work and Pensions to draft “potential” secondary legislation in an effort to help break the current deadlock.

“Clearly, it would be for the government and the DWP to decide whether they wanted it, and what the secondary legislation would look like . . . Any work we do would simply seek to inform,” said Royal Mail.

Royal Mail said it did not believe its offer to write the regulations presented a conflict of interest, adding: “Companies input [sic] into secondary legislation on a regular basis.”

The CWU said it backed Royal Mail’s efforts to bring about collective defined contribution pensions.

“If it enables us to resolve our dispute and create better pension outcomes than our members would [otherwise] have . . . then we are supportive of whatever it takes,” said Terry Pullinger, CWU general secretary.

Mr Pullinger added that he expected negotiations with Royal Mail to conclude within two weeks. An agreement would then go the CWU’s executive for consideration, before being put to a ballot of more than 100,000 members who work at Royal Mail.

Sir Steve Webb, the former Liberal Democrat pensions minister who is now director of policy with Royal London, the insurer, said it was “unusual” for a company to offer to help draft secondary legislation, but added: “There’s no way Royal Mail will draft something and government will then rubber stamp it and it happens”.

The Department of Work and Pensions said: “We are engaging with Royal Mail to better understand their pension proposals. However any changes to legislation would be in the interests of savers and the wider pensions industry.”

Collective defined contribution pensions have been described as a “third way” between two long established retirement schemes. There are defined benefit pensions, where employers provide a guaranteed level of income in retirement, and defined contribution schemes, where employees bear all the investment risk and have no certainty about how much money they will have after they stop work.

Under a collective defined contribution scheme, savers pool assets and share risk. Similar versions are already commonplace in Canada, Denmark and the Netherlands.

Proponents say such schemes give economies of scale and reduces the volatility of investment performance compared to a standard defined contribution scheme.

But these schemes have proved controversial in some countries, with retirees potentially facing cuts to their income as part of “smoothing” — where investment returns can be held back in good years to counter market volatility at other times.