Royal Mail have a bit of a problem, whilst the pension plan for their employees is currently in surplus, this is expected to run out as early as 2018. The Company’s annual pension contributions are currently around £400 million. If no changes are made, the contributions could more than double to over £1 billion in 2018.
Royal Mail have concluded that there is no affordable solution to keeping the Plan open in its current form and so have decided that the plan will close to future accrual on 31 March 2018.
Final salary type pension plans are largely a thing of the past as they’re simply unaffordable, most companies provide a defined contribution plan these days where your pension will be based on how much money has been paid into your pension pot. With a defined contribution, it’s affordable for a company as they know exactly what needs to be paid in, but less attractive for employee, especially in today’s low interest rate world as the pot will doubtless grow more slowly than a final salary scheme.
As you would expect, the Unions are up in arms threatening strike action which will in all likelihood achieve nothing. The CWU rightly point out “In place of the current Defined Benefit scheme, Royal Mail plan to put all members into inferior money purchase alternatives. On average, employees face losing up to a third of their future pensions.” No one is arguing with that.
The CWU go on to say “CWU has made clear that any attempt by the company to impose change without agreement will be met with the strongest possible opposition including a ballot for industrial action.”
There would on the face of it appear to be two credible alternatives, either Royal Mail close the Pension scheme and replace it with a defined contribution, or there’s a realistic chance that they could go bust. However the CWU suggest that a “defined benefit Wage in Retirement Scheme” would offer Royal Mail “a credible, cost efficient and lasting pension solution for all its employees”.
Everyone agrees something needs to be done to make Royal Mail’s pension scheme affordable. Unfortunately until it’s signed off by both the company, employees and the Unions the possibility of strike action is a realistic worry for all those reliant on the mail, especially for ecommerce retailers.