Royal Mail’s latest pension offer has been rejected by the union representing front-line staff, pushing the postal operator closer to its first national strike since it was privatised four years ago.
The company announced earlier this month that it would close its £7.4bn defined benefit pension scheme to future accruals from March 2018, prompting the union to obtain advance approval for a strike ballot.
Royal Mail on Friday rejected a package put forward by the union last month, which it said created “inherent risks to the company”.
It set out a new plan that it described as a “fair proposal that compares favourably with the retirement benefits offered in our industry”, adding that it “includes elements” of the union plan.
Terry Pullinger, deputy general secretary of the Communication Workers Union, said the company’s proposal was “both premature and arrogant”, and that the negotiations over the future of the defined benefit pension scheme were “far from over”.
The company has said the existing defined benefit scheme, which guarantees pensioners’ benefits, will become unaffordable from next year.
It currently makes about £400m in cash payments to the pension pot each year, but has predicted that could balloon to more than £1bn a year after March 2018 unless changes are made.
Under Royal Mail’s new plan, described as a “defined benefit cash balance scheme”, members would be given a guaranteed lump sum at retirement, linked to the value of the contributions they have paid.
That would be a step up from a defined contribution plan, where no such promise is made. But unlike a final salary pension, no guaranteed income would be offered.
Cash balance pension plans are considered a halfway house between old-fashioned final salary plans, where pension promises are a hard-wired benefit, and newer, less generous defined contribution arrangements, where members bear all investment risk.
But Mr Pullinger said it “beggars belief that the company really do consider that this mutant defined contribution proposal is in any way an adequate response” to the union’s proposals.
The CWU had billed its plan as a new kind of pension arrangement that would share some financial risks between workers and employers, and would have united the 90,000 members of Royal Mail’s defined benefit scheme with the 40,000 defined contribution scheme members under a single umbrella.
It sought to offer members more certainty over their retirement income — a better deal than a cash balance plan. But this would have involved an aggressive investment strategy for the pension scheme.
The CWU’s conference on Tuesday endorsed “an immediate ballot for strike action” if Royal Mail tried to impose its plans or failed to “positively respond” to the CWU’s proposals by August.
John Ralfe, an independent pensions consultant, said Royal Mail’s counterproposal was not much of an improvement on the company’s defined contribution scheme, which currently has 40,000 members.
“The CWU may claim credit for [getting] a better deal than the defined contribution pension offered by Royal Mail, but in truth this is just smoke and mirrors, which does very little for Royal Mail employees,” said Mr Ralfe.
“It is a million miles away from the CWU proposal of a less generous defined benefit plan.”
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