The U.K.s Royal Mail said it will offer employees a
new retirement plan following negotiations with union
officials, but the proposed scheme drew mixed reactions.
Royal Mail, the U.K.s largest mail company, has
unveiled a new defined benefit pension scheme that the postal
company hopes will stave off the first-ever national postal
strike in the U.K.
The company had been warned by employee unions in May that
plans to replace the £7.4 billion ($9.7 billion) defined
benefit retirement scheme with a defined contribution system
could lead to industrial action. The Royal Mail, which was
privatized in 2013, had told workers earlier this year that the
cost of providing a defined benefit pension plan was
unsustainable and that it would wind down the plan in its
But after plans to switch entirely to a defined contribution
plan were met with threats of a strike, the company went back
to the drawing board, revealing its latest plans on Friday.
Under the new scheme, Royal Mail would offer employees the
choice of two pension options one defined contribution
and one defined benefit starting on April 1, 2018.
Two labor unions representing Royal Mail workers had
decidedly mixed reactions to the plan, with trade union Unite
calling it an improvement on the original proposal and the
Communications Workers Union (CWU) saying the new proposal
represents a significant shortfall in the pensions
promise, according to reports.
In the U.K., defined benefit schemes were once commonplace,
particularly among state-run organizations, which the Royal
Mail once was. However, these schemes have become increasingly
rare, with most companies preferring to offer defined
On Friday Royal Mail said it expected the cost of the new
proposed plans to be funded by the £400 million of annual
pension contributions currently paid in by both the company and
It is able to fund the new Defined Benefit Cash
Balance plan because any increases to the value of the
fund in excess of contributions will be on a discretionary
basis based on how the underlying investments perform. Under
the existing DB plan, increases to the value of the fund in
excess of paid contributions are guaranteed each year.
Under the new plans, Royal Mail will increase its
contribution to members retirement accounts from the
current 12.6 percent to 13.6 percent each year. Member
contributions would represent an additional 6 percent.
In a written statement, the company said the new retirement
offer was based on extensive talks with its
employee unions, adding that company payments into the
companys defined contribution plan would also increase,
by 1 percent, applicable to current and future members.
Unite, the U.K.s largest trade union, said it will
ballot its 6,000 members on the pension proposals that have
been put forward by the Royal Mail. Brian Scott, Unite officer
for the Royal Mail, said in a written statement that the ballot
would close on August 7 and that the union is not making any
formal recommendation on whether its members should accept the
We think it is important that Unite members have an
opportunity to express an opinion on what is being put forward
by the company, Scott said in the statement. The
latest position is an improvement from the original
Scott added that union representatives had endured
many discussions with the company in recent months
that had been difficult, but he said the trade
union considered the proposals palatable.
The Unite negotiating team consider that what is on
offer is the best achievable in the circumstances, he
said in the statement.
The CWU had a decidedly different reaction, with CWU deputy
general secretary Terry Pullinger saying, It does not
meet our aspiration of a wage in retirement pension scheme, but
rather still promotes the conventional wisdom of a cash-out
arrangement at the point of retirement, according to a
Financial Times report.
We very much appreciate the care that the CWU applied
to its proposal. But, unfortunately, it does not meet the
fundamental principles underpinning our 2018 Pension Review.
They are: sustainability, affordability and security, a
Royal Mail spokeswoman said in a subsequent statement to
Institutional Investor, referring to an alternative proposal
floated by the union. We also calculate the CWU proposal
would cost significantly more than we can afford.