Pensions-Joint Statement

[mrlovepantsuk]

TO ALL BRANCHES WITH POSTAL MEMBERS

Dear Colleague



Pensions: Joint Statement between Royal Mail and CWU on Pension Consultation


The Postal Executive have endorsed a joint statement with Royal Mail covering proposed changes to the pension scheme on which Royal Mail intends to formally consult scheme members.



The pension issue has been uncoupled from the pay and modernisation agreement and will be the subject of separate consultation with members throughout Royal Mail Group, Romec and Quadrant who are members of the Royal Mail pension scheme. A consultative ballot of members affected by the proposed changes will take place at the end of the statutory 60 day consultation period. This will be separate from the statutory individual consultation being undertaken by Royal Mail. The union will hold National and Regional briefings to explain the company's proposal and the union's position. A date and venue for the national briefing will be advised shortly.



Please find attached to this LTB the following documents:



- A summary of the discussions on the pension issue to date

- The joint statement on pension consultation



Any enquiries on the above should be addressed to the DGSP department.

Email address: jdunn@cwu.org


Yours sincerely







Dave Ward, Ray Ellis,

DGS(P) Assistant Secretary


Royal Mail Pensions



Background



In February of this year the business started informal consultation on changes to the pension scheme. A consultative forum was established comprising management, CWU, Unite/CMA and representatives of the senior salary structure. The union set up a team to deal with issues arising out of the consultation consisting of: Ray Ellis, Bill Steel, Mark Baulch, Terry Pullinger, Jane Loftus and Norman Candy and commissioned Hilary Salt, of First Actuarial to provide expert advice.



The fundamental problem - for the future of the company as well as the scheme - is that following the most recent valuation the employer is required to pay £850 million a year into the scheme in order to buy service going forward and pay off the deficit.



The problem can be split into three components:



- The deficit, to pay off which Royal Mail is paying £270 million a year for 17 years (uprated by inflation) - just under 10p in every £1 of pensionable pay;

- The cost of pensionable service going forward - approx. £580 million a year - 20p in every £1 of pensionable pay;

- The risk associated with a final salary scheme going forward, where Royal Mail argues that the viability of the company is at the mercy of changes to life expectancy and the performance of investments which could add substantially to costs going forward - and that this risk is exacerbated if the scheme remains open to new starters.



As was reported in the representatives briefing on pensions issued on 28th September, the line taken by the union was to acknowledge the need for changes to reduce the on-going employer contribution but to insist that these must be the subject of full negotiation and agreement. We made it clear to Royal Mail that CWU was determined to protect, for the long term, our members past service contributions and benefits and to ensure that future pension provision remained of a high standard.



The pensions discussions became subsumed in pay negotiations. Royal Mail sought an explicit link to delivery of the pensions proposal in order to trigger part of the pay increase, on the basis of a proposal freezing pension accrued before 1 April 2008 and uprating at RPI capped at 5%, and introducing a calculation based on Career Average Revalued Earnings (CARE) indexed by RPI capped at 5% for existing scheme members from 1st April 2008, increasing retirement age to 65 from 1st April 2010, as well as closure of the scheme to new starters.



This would have produced a saving to the business of £1.6 billion from reduction in the deficit and reduced the ongoing employer contribution for future service for existing scheme members to 11%.



In response the union reaffirmed its commitment to a negotiated agreement on the basis of:



- Full protection of benefits accrued to date by maintaining salary link

- Right to retire at 60 for existing scheme members

- A defined benefit scheme open to all including new starters



The proposal



The proposal now on the table is not linked to any element of the pay offer.



It represents an unqualified success in protecting past service accrued to 1st April 2008 - Royal Mail has accepted that pensionable service to that date will continue to be calculated on the current pensionable salary basis. This means the business remains committed to paying off the deficit at the rate of £270 million for the next 16 years.



The company has acknowledged that the RPI cap on future service indexation from 1st April 2008 will be the subject of consultation with the union. The indexation issue will need to be part of the future bargaining agenda of the union.



On retirement age, the business has confirmed that existing scheme members will retain the right to take pension at 60 - or any time thereafter - unreduced for service up to 1st April 2010, actuarially reduced for service after that date if taken after 65. However, an important concession will allow members to take pension accrued up to 1st April 2010 at 60 whilst continuing to pay contributions to the scheme going forward. This would enable members to take pension whilst remaining at work and continuing to contribute producing a potentially higher total pension at 65.



The other significant change is the acknowledgement that dialogue will continue on alternatives to the closure of the scheme to new starters during the consultative process and confirmation of the union's role in development of any DC scheme. The union has a number of ideas which would give new starters a route into a final salary scheme after a period in a DC scheme. The important point is that there is a real opportunity to keep the debate open on an issue which hitherto the business has been firm in insisting must be closed.



Conclusion



The pension issue was always going to be difficult. It would have been an abdication of responsibility for the union to have sought to stand aside from the difficult decisions which need to be taken to ensure the ongoing viability of both the scheme and the business, but an acknowledgment that £850 million per annum cost is unsustainable leads inevitably to the conclusion that either employee contributions must rise or benefits reduce or both.



What we have achieved:



- The union has been completely successful in the key aim of fully protecting past service benefits.

- The proposal offers a way of considerably mitigating the effect of moving the normal retirement age to 65. Members will have various options, including taking full pension on service accrued before 1st April 2010 whilst continuing to contribute. The right to retire at 60 is retained.

- The Career Average Revalued Earnings (CARE) scheme going forward remains a good defined benefit pension scheme and the issue of indexation will become part of the unions bargaining agenda. Existing scheme benefits and accrual rates remain unchanged.

- There is an opportunity to negotiate on the form, governance, and contribution rate of a DC scheme and attempt to create a route into a final salary scheme for new starters.



Taken together this represents a significant major improvement for the union and its members in comparison to both the leaked company proposal of July 2007 and the proposal previously linked to the pay offer. There is no doubt that this could not have been achieved without the determination and sacrifice of CWU members.



Next Steps



The company proposal will be the subject of a statutory 60 day consultation period with scheme members. The union will be holding a National Briefing for representatives followed by a series of Regional briefings. We will provide members with detailed guidance on the proposals and answer questions on the implications.



We will ballot all members affected by the proposal before any final changes are implemented following the conclusion of the consultation period. We will continue to lobby for the immediate release of the money in the ESCROW account in order to reduce the deficit on existing liabilities. What is now important is that the whole of the union engages in an informed discussion about pensions. The union is committed to this objective.

[dvbuk55]

Does this mean that the Union employees from the top to the bottom will no longer enjoy a final salary pension? After all if a major company cannot sustain a final salary scheme indefinitely then we should be looking at the scheme operated by the CWU. Or is it a case of holier than thou?

Having read this on the pension scheme which the union said had been de-coupled from the negotiations and that a 90 consultation was to take place they have been mighty quick reaching a conclusion.

Makes you wonder what the outcome of the D2D is going to be - which of course has not yet been decided, annualised hours? - not yet decided, monthly pay - not yet decided or have they and these and any other "not yet decided" appear after this ballot.