This content is from: Corner Office

UK Faces Postal Strike As Pension Battle Heats Up

Employees of the UK’s Royal Mail are threatening their first-ever industrial action as the company says the cost of providing a defined benefit pension is unsustainable.

  • Joe McGrath

The UK appears to be edging closer to its first ever national postal strike as a dispute between Royal Mail and its employees over the company's defined benefit pension plan took a new turn on Monday.

The UK’s largest mail company, which was privatized in 2013, released a statement saying the cost of providing benefits will reach £1.3 billion ($1.7 billion) in 2018, compared with the £400 million in total annual contributions made by the company and employees together. In the statement, the company said it expects it will burn through its actuarial funding surplus in 2018 if the plan continues operating in its current form. At that point, the annual cost would be more than double the plan’s current contributions, “which, as we have pointed out to Plan members in a number of communications, is unaffordable for the company,” the statement said.

Today’s statement follows Royal Mail’s announcement last month that it intends to wind down its defined benefit pension scheme for workers in its current form because the cost of providing benefits is no longer viable. The move sparked outrage with the Communications and Workers Union — the trade union that represents some of the Royal Mail employees in the UK — who called on the company to rethink the decision.

The Royal Mail will close the plan on March 31, 2018, subject to trustee approval, according to today’s announcement. The company added that it will continue to “work closely” with the unions to find a solution on pension benefits before the March deadline.

The Royal Mail is the latest in a long line of British employers to float the idea of closing its defined benefit pension scheme. DB schemes guarantee a retirement income at a fixed sum and were once commonplace in Britain. Today, most companies offer defined contribution (DC) schemes, which do not promise a fixed income in retirement.

Royal Mail has said it wants to replace its £7.4 billion DB scheme with a DC system. The CWU has proposed a middle-ground alternative, consisting of an annual review to see if the pension’s investment performance is suitable, considering inflation. If not, further discussions could be held at that point about funding.

Last week, Unite, the union that represents a further 6,000 members of the Royal Mail, said it is continuing to hold meetings with the management of the company on its pensions proposals.

“As we have previously stated, if we don’t achieve a satisfactory outcome, we can’t rule out an industrial action ballot on this issue,” said Brian Scott, Unite officer for the Royal Mail, in a statement issued at the time. “However, we will be consulting with our members closely at every stage over the coming weeks.”

Royal Mail closed its DB pension scheme to new members in April 2008 and conducted a review of the plan between January and March of this year. The review was designed to collate the views of the 90,000 members of the scheme, including the views of the CWE and the Unite Communication Managers Association.