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Shutting the stable door...

07 Feb 2018, 13:49 ... table-door

The industry has been calling for some sort of alternative to defined benefit (DB) schemes for as long as I can remember - saying such arrangements could provide a third way between DB and defined contribution (DC) schemes.

Yet, despite significant discussion on such defined ambition schemes - including an inquiry by the Work and Pensions Committee, which closed to written submissions last week - little enabling legislation has been put in place and few employers have shown an interest in putting such schemes into place.

That is, until now.

Last week, Royal Mail reached agreement with its main union, the Communication Workers Union to close the DB Royal Mail Pension Plan (RMPP) to future accrual in its current form on 31 March this year and work towards replacing it with a CDC alternative.

The deal - which is subject to approval by union members - will see a transitional cash balance scheme put in place from 1 April, into which existing DB members will transfer on 1 April. DC members with at least five years' service will also have the option of joining this scheme.

In addition, Royal Mail and the CWU have committed to work towards the introduction of a CDC scheme for all employees, subject to necessary legislative changes, and will lobby government to make the necessary legislative and regulatory changes so a CDC scheme can be established (indeed, PP understands Royal Mail has offered to draft the necessary legislation for the government).

The new CDC arrangements will target, although not guarantee, a similar level of member benefits as the current RMPP, while significantly reducing risk to the company.

Yet, in the run-up to Brexit, it is far from guaranteed the necessary legislation will be passed to enable Royal Mail to implement its CDC scheme.

Even if Royal Mail can get the scheme of the ground - and I really hope it can - it is unlikely that more than a handful of companies will follow the postal service's lead.

CDC would have been a welcome option for companies that were closing DB schemes 10 or more years ago. Today, however, I think most will want to stick with DC.

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