Royal Mail begins pension plan consultation
Royal Mail has launched a consultation with the active members of Royal Mail Pension Plan, as part of the 2018 Pension Review it is conducting with the trade unions, CWU and Unite/CMA. In June 2016, Royal Mail told Plan members that it believed “the current Plan will soon not be affordable”.
In a statement issued yesterday (5 January) to announce the launch of the consultation, Royal Mail reiterated why it believed that changes to the Plan are necessary.
“The Plan is currently in surplus. But, we expect this surplus will run out in 2018,” said Royal Mail. “At £400 million per year, Royal Mail makes one of the UK’s largest ongoing cash contributions. The level of Company contributions required from April 2018, if the Plan was maintained in its current form, is not affordable.
“The most recent financial review indicates the Company’s contribution rate would increase from around 17 per cent of pensionable pay to over 50 per cent. This would more than double the Company’s contribution after March 2018 – to over £1 billion – if members continue to build up benefits on the current basis beyond that date. This increase would not be affordable. It is significantly more than the annual cash Royal Mail generates – around £290 million in 2015- 2016. This extra cost would reverse the benefits to the Company and employees of the previous actions we have taken. Those actions helped to make members’ pensions more secure, improved the viability of the Company and enhanced future job security.
“Since the 2012 review, financial market conditions have significantly worsened and recent improvements have not materially changed that position. Many companies have already closed their Defined Benefit pension schemes. Only a few FTSE 100 companies, like Royal Mail, have a significant number of their employees in a Defined Benefit scheme.”
Royal Mail has proposed changes which would mean that – amongst other things – members would no longer build up future pension on a Defined Benefit basis, but would instead build up future benefits on a Defined Contribution basis.
The e consultation period ends on 10 March 2017, and no changes will come into effect before April 2018.
Jon Millidge, Royal Mail Group HR director, commented: “We know how important pension benefits are to our people. 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.”
