Why are Royal Mail risking strikes with Pension renegotiations?

It’s been a number of years since Royal Mail workers walked out en masse although it used to be pretty much a biennial event, generally every second year in the run up to Christmas. Now as Royal Mail announce a formal consultation on the company’s pension scheme the unions are rattling their sabres and threatening strikes again. But what’s the reason for renegotiating pensions and what are the unions actually threatening?

The Unions are only threatening strikes if Royal Mail take “executive action” and close the Royal Mail Pension scheme without agreement with the unions. As we all know this is a tricky one as Unions generally don’t like any changes that impact workers so reaching agreement is always difficult.

The reason that Royal Mail may be forced to take executive action if agreement isn’t reached is simple. At the current rate predictions are that they’ll go bust if they try to carry on funding existing pension arrangements beyond about 2018. Royal Mail say “The Plan is currently in surplus. But, we expect this surplus will run out in 2018. At £400 million per year, Royal Mail makes one of the UK’s largest ongoing cash contributions. The level of Company contributions required from April 2018, if the Plan was maintained in its current form, is not affordable“.

When Royal Mail say “not affordable”, what they mean is that the annual cash Royal Mail generated was around £290 million in 2015-2016 and the pension would require a contribution of over over £1 billion per year unless they change it’s structure. They really do have no choice but to change the way the pension works and doubtless this means Posties will get less in retirement.

What Royal Mail intend to do is to change from a defined benefits scheme to one where benefits would be dependant on investment performance. That’s less risky for Royal Mail as they have fixed contributions but less desirable for workers as until they retire they don’t know exactly what their pension will be worth.

The consultation period ends on the 10th of March 2017 so don’t expect any action before then. Royal Mail say that they will carefully consider member feedback and discuss it with unions as part of the 2018 pension review process and that no changes would come into effect before April 2018.

If the Unions don’t like the proposals and talks end in deadlock that’s when the risk of strikes becomes real. If they happen it would be no surprise to see Christmas 2017 being the target as that’s traditionally the time of year when Royal Mail strikes have been called in the past.

In 2016 we say the Unions call a rash of strikes across multiple industries in the vain belief that wrecking consumer’s Christmases would engender sympathy. The world has moved on however and tolerance for striking workers is possibly at an all time low and consumers simply expect companies to find alternative ways to serve them. The one exception to this has been Southern with their ongoing train strikes to which there seems no end in sight.