We know how important pension benefits are to our colleagues. As part of our 2018 Pension Review we have been working with the CWU and Unite/CMA on a sustainable and affordable solution for some time.
Royal Mail is looking at options for the accrual of retirement benefits after 31 March 2018, including a Defined Benefit cash balance scheme that builds on a proposal put forward by the CWU. This addresses some of the employee feedback Royal Mail received during the member-wide consultation. The scheme would be set up in a new section of the Plan. Plan members would have the option of joining a Defined Contribution scheme as an alternative.
Member benefits built up until April 2012 are backed by Government. Benefits built up between 2012 and 2018 are backed by the Plan’s assets. From 1 April 2018 the Defined Benefit cash balance scheme would provide members with a guaranteed lump sum at retirement. Members would be guaranteed to receive the total value of the contributions paid towards their lump sum up to retirement. In addition, discretionary increases would be applied up to retirement, subject to the investment performance of the scheme. Once applied, these increases would also be guaranteed.
Having reviewed matters with its actuarial advisers, the Company believes that the risk to the Company of the proposed Defined Benefit cash balance scheme would be materially lower than under the current Plan. The Company would also take steps to manage risk further through an appropriate investment strategy and a proportion of the Company contributions would be held as a pension risk reserve for additional security.
The proposed Defined Benefit cash balance scheme includes elements of a CWU proposal, without some of the inherent risks to the Company that, in our view, the CWU scheme would have created. We very much appreciate the care that the CWU applied to its proposal and we have agreed to meet them to discuss it further. However, at the moment we do not believe the CWU proposal, in its current form, meets the fundamental principles underpinning our 2018 Pension Review. These are: sustainability, affordability and security.
We believe that the Defined Benefit cash balance scheme would be a fair proposal that compares favourably with the retirement benefits offered in our industry and by other large UK employers. We will continue to discuss the future of the Plan with our unions CWU and Unite/CMA. We will write to Plan members once more decisions have been made.
The Company is also engaging in discussions with the CWU on issues including pay, the working week and the range of agreements under the Agenda for Growth.
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