Closing one of Britain’s largest final salary pension schemes is unlikely to be a red-letter day for the Royal Mail as workers threaten industrial action.
The pension has almost 100,000 members and assets under management of £7.4 billion, but bosses say the scheme is unaffordable and have no option other than closure to protect the pensions of current members.
A Royal Mail pension pays a guaranteed, index-linked income and tax-free lump sum based on a worker’s salary and length of service.
The plan is to replace the final salary guarantees with a less generous defined contribution scheme that comes with no guarantees. Instead, the amount paid depends on the value of underlying stock market investments.
The Communication Workers Union (CWU) is angry at the prospect and has threatened to disrupt postal services if the plan goes ahead.
Workers stand to lose thousands
The union claims workers could lose up to a third of pension benefits over their lifetime.
Giving the example of a 50-year-old earning £25,000 a year retiring at 65 years old, the loss over a 25-year retirement could amount to almost £110,000 at the rate of £4,392 a year.
Royal Mail argues that after consulting pension professionals, workers and the union, no one can come up with a viable plan to keep the current pension running.
“The scheme will go into deficit from next year,” said a spokesman.
”We have concluded that there is no affordable solution to keeping the plan open in its current form. Therefore, the company has come to the decision that the plan will close to future accrual on March 31, 2018, subject to trustee approval.”
“We are still in talks with unions about a sustainable and affordable solution for the provision of future pension benefits.”
Meanwhile, the union considers the closure proposal unacceptable to members in the scheme.
“Although Royal Mail’s own consultation exercise revealed massive opposition to its closure plan, the company has decided to ignore the views of its workforce and proceed with closure without consent,” said a spokesman.
“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.”