We have had extensive talks with our unions, Unite/CMA and the CWU, on a sustainable and affordable solution for retirement benefits for Plan members after 31 March 2018, when the Plan in its current form will close to future accrual.
The Company is now offering members a choice between a) a Defined Benefit scheme and b) a Defined Contribution scheme, set up as new sections of the Royal Mail Pension Plan (the Plan).
The Company understands that Unite is planning to hold a consultative ballot1 of its members on this proposal, as it believes that this is the best available deal for Plan members and a significant improvement on the Company’s original Defined Contribution proposal.
Royal Mail has also offered this improved proposal to the CWU, making it available to all Plan members.
The Company expects that the overall cost of the proposal will be funded within its current £400 million annual pension contribution. Royal Mail believes that the risk to the Company of the proposed Defined Benefit cash balance scheme would be materially lower than under the current Plan and is a manageable risk for us.
What this means for the Company
At 15.6%, the total Company contribution would remain unchanged from our initial Defined Benefit cash balance proposal. The Company expects that the overall cost of the proposal will be funded within its current £400 million annual pension contribution.
The Defined Benefit cash balance scheme and the Defined Contribution scheme would be set up as new sections of the Plan. They would replace Sections B and C of the Plan which, as previously announced, will close to future accrual next March.
Royal Mail believes that the risk to the Company of the proposed Defined Benefit cash balance scheme would be materially lower than under the current Plan and is a manageable risk for us.
How the proposal would work
The Company is offering members the choice of joining either a Defined Benefit cash balance scheme or a Defined Contribution scheme. Royal Mail is one of few companies offering to replace one Defined Benefit scheme with another.
From 1 April 2018, the Defined Benefit cash balance scheme would provide members with a guaranteed lump sum at retirement. 97% of members currently give up annual pension at retirement in order to take a tax-free lump sum. Under the Company’s proposal, there would be less need – or even no need at all – for members to give up annual pension to get a tax-free lump sum.
The Company contribution to members’ retirement accounts would increase from 12.6% to 13.6%, compared with the initial Defined Benefit cash balance scheme proposal. The Company would contribute a further 2% for other member benefits, including death in service and ill-health. Members’ retirement accounts would be credited with 19.6% of pensionable pay every year. This includes 13.6% from the Company and 6% from members.
Plan members would also have the option of joining a new Defined Contribution scheme as an alternative. The Company contribution would be 13.6% of pensionable pay. For some members, this could be a better option.
Improvements to the Royal Mail Defined Contribution Plan
In addition, as previously announced, Royal Mail is ready to make improvements to the Royal Mail Defined Contribution Plan (RMDCP). From 1 April 2018, we propose increasing the Company’s standard contribution by 1% in each tier, up to a maximum of 10%. This would apply to all current and future RMDCP members. This compares favourably with other large employers.
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