Royal Mail staff awaits pension details

Royal Mail says the Communication Workers Union (CWU) has agreed to the closure of its final salary scheme.

But the union says it has only agreed to a consultation on changes, which will then be put to a ballot of all its Royal Mail and Post Office members.

“The final details have not been decided on,” said a CWU spokeswoman.

Since the start of the year, Royal Mail has wanted to cut the cost of its huge final-salary pension scheme, which covers 160,000 staff but has a deficit of GBP 6.5bn.

Along with changes to working practices, the closure of the existing final-salary scheme and its replacement with cheaper alternatives was at the heart of the postal service’s recent industrial dispute.

Settlement

Settled on Monday after days of negotiations, the dispute saw tens of thousands of postal staff on strike at sorting offices and depots around the country.

There will be a ballot right across all CWU members in the Royal Mail group

CWU spokeswoman

Among the issues agreed, said the Royal Mail, were: “The union’s support for the company’s overall proposed pension reform.”

“Royal Mail’s proposals include closing the final salary scheme to new members from 31 January 2008 and replacing it with a Defined Contribution scheme [and] introducing a Career Average Defined Benefit scheme for our existing employees from 1 April 2008,” it added.

However, a spokeswoman for the CWU said the union was annoyed its stance had been misrepresented.

She said the union had only agreed to a new, separate, process of consultation on the proposed pension changes, which was no longer related to the deal on pay and working conditions.

“Whatever comes out of the consultation, there will be a ballot right across all CWU members in the Royal Mail group, including the Post Office, Parcel Force, cleaners and caterers,” she said.

Career average

For existing staff, the crucial issue will be to what extent the new “career average” scheme is worse than their current final salary version.

Overall it will be less generous, requiring Royal Mail to pay in less each year as a percentage of staff salaries, thus cutting the employer’s overall contribution rate by perhaps five percentage points, according to one union official.

For staff who expects their salaries at the end of their careers to be significantly higher than when they started, such a scheme would undoubtedly be inferior.

For staff who does not expect much by way of promotional pay increases, it will not be so damaging.

Crucial to the calculation will be the rate at which pension is built up each year.

The CWU says the new scheme will maintain the same accrual rates as the current final salary one, either 1/60th or 1/80th of salary each year.

The BBC has also learned that the plan is for each member’s individual pension pot to be revalued each year in line with inflation, up to a ceiling of 5%, rather than being linked to final salary at retirement.

That would expose the members’ pensions to being eroded by inflation if it was running at a rate higher than 5 pct.