Comment on CWU proposals for the Royal Mail pension scheme

14 Mar 2017, 16:58 ... -10804.htm

Jon Hatchett, Head of Corporate Consulting, Hymans Robertson comments on the CWU proposal for Royal Mail’s pension scheme: The CWU’s proposals for greater pension risk sharing between employers and employees for Royal Mail’s pension scheme take us back to the future. Back in the 1970s DB pension schemes had these type of pressure release valves which successive layers of legislation have stripped away.
While member certainty over the pension promise has increased, the appetite of sponsors to offer these benefits has plummeted due to the rising cost of provision, which has seen active membership levels fall dramatically.

“There has to be a way to find a middle ground between DB and DC. While risk sharing solutions would be much better for employees, any guarantees are likely to face strong resistance from employers. It’s an area the former Pensions Minister, Steve Webb, tried to encourage back in 2011/12. However it never really took off, probably as many sponsors were feeling the pain of cash calls to plug deficits. Whether sponsors are ready to start underwriting guarantees remains to be seen. For most employers the DB backlog of debt needs to be cleared first.

“The other potential barrier to more risk sharing is that any arrangements that are not fully DC fall into the DB regulatory regime which means a lot of extra compliance costs. That means risk sharing can only be a viable option for large, or very benevolent, employers. Legislative change could help open it up to a broader range of employers.

“Where employers have no appetite to underwrite any sort of guarantee, there are alternatives to risk sharing that can help make DC arrangements more suitable for the transition from DB. Many DC schemes leave employees to make difficult choices about investment and contributions, leaving them confused and often disengaged with pensions. There are approaches, based on engaging technology and communications, that support members with these decisions, guiding them to better outcomes and keeping them on track. These should be looked at more as we see more employers make the switch from DB to DC.”

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