Strike threat after Royal Mail closes pension scheme

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Postal unions are threatening to ballot for industrial action after Royal Mail said it will close its defined benefit pension scheme in 2018.

The postal service said that the pension plan was currently in surplus, but it was not sustainable.

Royal Mail contributes about £400m a year, but it said this would have to increase to more than £1bn by 2018.

The Communication Workers’ Union (CWU) condemned the move, and threatened to ballot its members for strike action.

However Royal Mail, which was privatised in 2012, said there was little alternative to closing the scheme.

“We have concluded that there is no affordable solution to keeping the plan open in its current form,” the company said.

“Therefore, the company has come to the decision that the plan will close to future accrual on 31 March 2018, subject to trustee approval.”

The defined benefit scheme was closed to new members in 2008, but 90,000 postal staff have continued to contribute.

‘ Affordable solution’

The CWU said their members – including sorting and delivery staff – could lose up to a third of their future pensions.

A 50 year-old earning £25,000 a year and retiring at 65 would lose £4,392 a year, or more than £100,000 over the course of their retirement, it said.

“The 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,” said Ray Ellis, the union’s acting deputy general secretary.

“We will not stand by and watch the company abandon the pension promises it made at the time of privatisation which threatens our members with massive cuts to their future pension benefits and insecurity and poverty in retirement.”

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What is a defined benefit pension?

  • Workers who pay into a defined benefit (db) scheme get a guaranteed income for life, based on their final salary, or career average pay. The income is usually adjusted for inflation, and often provides benefits for next-of-kin.
  • Workers who pay into a defined contribution (dc) scheme pay in to a savings pot, which is used to buy a pension when they retire. The size of the pot is determined by the performance of the stock market.

The current Royal Mail pension scheme is based on a worker’s average pay throughout his or her career, known as “career average”.

But the company wants members of the scheme to change to a defined contribution plan – in which the company and staff contribute to a pension fund with no guarantee of eventual income levels.

However, it said that it was working with unions on a sustainable and “affordable solution”.

Royal Mail shares rose sharply on the news, but later fell back.

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