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Royal Mail warns of industrial action if CDC is not achieved; completes buy-in for executives' pensions

16 Nov 2018, 12:05

http://www.pensionsage.com/pa/Royal-Mai ... nsions.php

Royal Mail has warned that there could be industrial action if it is unable to launch a collective defined contribution scheme because of legislation, and an alternative agreement cannot be reached.

Publishing its half-year results today, 15 November, Royal Mail said it was “making good progress” with the pension elements of its agreement with the Communication Workers Union (CWU).

“We are working closely with the CWU to secure the introduction of the UK's first CDC scheme. We were pleased to see the government's recent publication of the public consultation on the introduction of CDC schemes. This is an important step forward in our campaign to allow us to offer a CDC scheme for over 140,000 UK employees as soon as possible.

“We may be unable to obtain the necessary legislative changes to implement the UK's first Collective Defined Contribution (CDC) pension scheme as agreed with the CWU. If alternative arrangements cannot be agreed, this may lead to industrial action,” it stated.
The Royal Mail Pension Plan (RMPP), its defined benefit scheme, closed to future accrual on 31 March 2018, which it said ensured the avoidance of a £1.25bn cash contribution per annum. Its total contributions, in respect of all pension schemes, is around £400m per annum.

Following the closure of the RMPP, Royal Mail put in place transitional arrangements and implemented a new Defined Benefit Cash Balance Scheme (DBCBS), and an improved Royal Mail Defined Contribution Plan (RMDCP). RMPP members automatically started building up DBCBS benefits from 1 April 2018 (unless they opted to join the improved RMDCP instead) together with eligible RMDCP members who opted to join.

The DBCBS guarantees members a minimum lump sum at age 65, and is being accounted for as a DB scheme. It will aim to provide increases to the lump sum each year, depending on investment performance.

“An IAS19 deficit of £32m is shown on the balance sheet. The scheme is not in funding deficit and it is not anticipated that deficit payments will be required. The DBCBS will be subject to triennial valuations,” Royal Mail said.

Royal Mail has made contributions at 15.6 per cent (£147m) of DBCBS pensionable pay in respect of the scheme. Members will contribute 6 per cent (including pension salary exchange).

With regards to the RMPP, it said the pre IFRIC 14 accounting surplus of the RMPP at 23 September 2018 was £3,152m, comprising assets of £9,542m and liabilities of £6,390m. The pre IFRIC 14 accounting surplus has reduced by £98m in the period, as the increase in discount rate has had a greater impact on assets than on liabilities.

“This is because the scheme's hedging arrangements are designed to maintain its funding position, which is currently 149 per cent on an accounting basis. After the IFRIC 14 adjustment, the accounting surplus of the RMPP was £2,049m at 23 September 2018. This is an accounting adjustment with no cash benefit to the company,” the report stated.

The company also revealed it has completed a buy-in for the Royal Mail Senior Executives Pension Plan (RMSEPP), and the triennial valuation, as at 31 March 2018, has been completed. The scheme had an actuarial surplus at 30 September 2018 of £10m, compare to 31 March 2018 £36m. The RMSEPP closed in December 2012 to future accrual and the company makes no regular service contributions. However, a final deficit payment of £1m will be paid per annum for the period 1 April 2018 to 31 March 2025 in respect of death-in-service lump sum benefits and administration expenses.

In September 2018, the RMSEPP trustees purchased a further buy-in policy of insurance in respect of its remaining pensioners and deferred pensioners. Prior to the buy-in, the scheme had an IAS 19 surplus of £74m and a funding surplus of £36m. The buy-in reduces both the funding and accounting surpluses to £10m, but significantly reduces the risk that further contributions could be required from the company.

Royal Mail warns of industrial action if CDC is not achieved; completes buy-in for executives’ pensions

16 Nov 2018, 12:37

TrueBlueTerrier wrote:
The DBCBS guarantees members a minimum lump sum at age 65, and is being accounted for as a DB scheme. It will aim to provide increases to the lump sum each year, depending on investment performance.

“An IAS19 deficit of £32m is shown on the balance sheet. The scheme is not in funding deficit and it is not anticipated that deficit payments will be required. The DBCBS will be subject to triennial valuations,” Royal Mail said.


I know these things are long term investments, but a deficit of £32 million in the space of 7 months? It's not got off to the best of starts has it? :d'oh!

Royal Mail warns of industrial action if CDC is not achieved; completes buy-in for executives' pensions

16 Nov 2018, 18:15

How much has been paid to share holders so far? as this money is just sucked out for doing absolutely nothing.

Royal Mail warns of industrial action if CDC is not achieved; completes buy-in for executives' pensions

16 Nov 2018, 20:38

Not interested .who is going to pay the youngest staff ? Or how are the PT going to pay people's pensions paying in £8 a week?

Royal Mail warns of industrial action if CDC is not achieved; completes buy-in for executives' pensions

18 Nov 2018, 15:20

So who pays my pension in twenty years when staff are on peanut

Royal Mail warns of industrial action if CDC is not achieved; completes buy-in for executives' pensions

18 Nov 2018, 20:48

How many millions is RM saving per year on current pension compared to last year's?.

Royal Mail warns of industrial action if CDC is not achieved; completes buy-in for executives' pensions

19 Nov 2018, 05:50

arnold cheshire wrote:So who pays my pension in twenty years when staff are on peanut

As long as there's enough money in the pot to pay everyone's pension, in theory it doesn't matter if the future workforce is smaller and more part time, as they will be building theirs up on a pro rata basis.
Although one of the benefits of CDC is supposed to be economy of scale, which a much smaller part time workforce doesn't necessarily fit into!

Look at the maths:

Based on current basic full time pay of £22,511 per year(£432.92 p/w) and a total contribution level of 19.6%, that means there's £4,412 going into our pensions each year. *There will be no Lower Earnings Deduction.

Benefits under CDC will accrue at the rate of 3/80ths of pensionable pay for the lump sum and 1/80ths for the pension. Making £844 and £281 respectively.

Which means that £4,412 equals your lump sum up front and around 12.5 years worth of pension, assuming taking it at NRA of 67 and not accounting for any increases or decreases along the way.

So as long as the investments perform reasonably well over time, there should be enough in the pot to pay for everyone's pension, how ever many hours our future colleagues work.

In practice CDC will face similar obstacles to DB, like:

The employers ability to pay their contributions.
Investment returns.
Life expectancy.

With the caveat being that with CDC, our pensions could be reduced to counteract the effects of the above.

It's not perfect, but the CWU campaigned for a pension giving us a 'wage in retirement' rather than just a pot of cash.
In my opinion, realistically CDC is the best we're going to get!

Royal Mail warns of industrial action if CDC is not achieved; completes buy-in for executives' pensions

19 Nov 2018, 05:52

Rommagic wrote:How many millions is RM saving per year on current pension compared to last year's?.

I could be wrong but I think RM's contribution is roughly the same under DBCBS as it was under CSDB, at around £400 million. If the CSDB scheme had stayed open we were told it would triple to about £1.2 Billion.

The CDC scheme figures(should it happen) are also about £400 Million.

Royal Mail warns of industrial action if CDC is not achieved; completes buy-in for executives' pensions

19 Nov 2018, 06:55

RobertT wrote:
Rommagic wrote:How many millions is RM saving per year on current pension compared to last year's?.

I could be wrong but I think RM's contribution is roughly the same under DBCBS as it was under CSDB, at around £400 million. If the CSDB scheme had stayed open we were told it would triple to about £1.2 Billion.

The CDC scheme figures(should it happen) are also about £400 Million.


Yes we were TOLD that it would go up to £1.2 billion per year but did anybody like the union of an independent body actually ask RM how they came to that conclusion. It's a farce and I've said it before that all this talk about the new pension is all smoke and mirrors. It ain't going to happen. We were stung and RM cannot believe how easily the union folded.

Royal Mail warns of industrial action if CDC is not achieved; completes buy-in for executives' pensions

19 Nov 2018, 09:22

Navalron wrote:Yes we were TOLD that it would go up to £1.2 billion per year but did anybody like the union of an independent body actually ask RM how they came to that conclusion. It's a farce and I've said it before that all this talk about the new pension is all smoke and mirrors. It ain't going to happen. We were stung and RM cannot believe how easily the union folded.

The CWU were in talks with RM for many months and I seem to remember the union saying it agreed that the RMPP would have to close. Although to be fair I no longer have the exact literature any more. Perhaps somebody else might have it or it might be online or on RMC somewhere?

RM initially proposed a DC scheme for all, which was countered by the CWU's WinRS alternative. CDC was the result of the aformentioned talks and was a joint agreement between the two parties. Which was then voted in by the membership!

If the CWU thought the RMPP could stay open, why didn't they campaign for it, instead of putting WinRS forward initially, and latterly championing CDC?

Although I do agree that it's still nip and tuck as to whether CDC will actually happen or not. The required legislation might not be forthcoming and considering RM's recent financial figures, they might not be willing or able to put in the money required.

Royal Mail warns of industrial action if CDC is not achieved; completes buy-in for executives' pensions

20 Nov 2018, 08:35

RobertT wrote:
arnold cheshire wrote:So who pays my pension in twenty years when staff are on peanut

As long as there's enough money in the pot to pay everyone's pension, in theory it doesn't matter if the future workforce is smaller and more part time, as they will be building theirs up on a pro rata basis.
Although one of the benefits of CDC is supposed to be economy of scale, which a much smaller part time workforce doesn't necessarily fit into!

Look at the maths:

Based on current basic full time pay of £22,511 per year(£432.92 p/w) and a total contribution level of 19.6%, that means there's £4,412 going into our pensions each year. *There will be no Lower Earnings Deduction.

Benefits under CDC will accrue at the rate of 3/80ths of pensionable pay for the lump sum and 1/80ths for the pension. Making £844 and £281 respectively.

Which means that £4,412 equals your lump sum up front and around 12.5 years worth of pension, assuming taking it at NRA of 67 and not accounting for any increases or decreases along the way.

So as long as the investments perform reasonably well over time, there should be enough in the pot to pay for everyone's pension, how ever many hours our future colleagues work.

In practice CDC will face similar obstacles to DB, like:

The employers ability to pay their contributions.
Investment returns.
Life expectancy.

With the caveat being that with CDC, our pensions could be reduced to counteract the effects of the above.

It's not perfect, but the CWU campaigned for a pension giving us a 'wage in retirement' rather than just a pot of cash.
In my opinion, realistically CDC is the best we're going to get!

Thanks Robert T

Royal Mail warns of industrial action if CDC is not achieved; completes buy-in for executives' pensions

20 Nov 2018, 08:55

So as long as the investments perform reasonably well over time, there should be enough in the pot to pay for everyone's pension, how ever many hours our future colleagues work.

There may be a problem with that. RM have consistently failed to invest in more risky, but more rewarding assets. One of the main reasons the FS pension, then the Career Average pensions failed.
What needs to happen, is some sort of pension life styling, so an individuals pension is placed in less risky assets as they approach retirement. This whole collective investment strategy is a dead duck if you ask me. A quality DC scheme with a decent range of funds should be provided. There's plenty of information out there to give people ideas.

Royal Mail warns of industrial action if CDC is not achieved; completes buy-in for executives' pensions

20 Nov 2018, 09:08

heapsy wrote:So as long as the investments perform reasonably well over time, there should be enough in the pot to pay for everyone's pension, how ever many hours our future colleagues work.

There may be a problem with that. RM have consistently failed to invest in more risky, but more rewarding assets. One of the main reasons the FS pension, then the Career Average pensions failed.
What needs to happen, is some sort of pension life styling, so an individuals pension is placed in less risky assets as they approach retirement. This whole collective investment strategy is a dead duck if you ask me. A quality DC scheme with a decent range of funds should be provided. There's plenty of information out there to give people ideas.


This is the reason I joined the RMDCP as I would rather have my cash in my name instead of being invested collectively in some poor performing investments.
Hopefully I won't be forced to join this CDC abomination sometime in the future.

Royal Mail warns of industrial action if CDC is not achieved; completes buy-in for executives' pensions

20 Nov 2018, 09:55

heapsy wrote:
RobertT wrote:So as long as the investments perform reasonably well over time, there should be enough in the pot to pay for everyone's pension, how ever many hours our future colleagues work.

There may be a problem with that. RM have consistently failed to invest in more risky, but more rewarding assets. One of the main reasons the FS pension, then the Career Average pensions failed.

If you look back at some of your old reports & accounts for the RMPP, at one time they were heavily invested in equities – up to 80 odd percent, if I remember correctly. But they lost money due the dot com crash and largely got out in the early noughties and therefore missed out on the market recovery afterwards. A basic schoolboy error! :arrrghhh

That along with the 13 year pension holiday and increased life expectancy is what largely put paid to the FS scheme. The Career average pension or at least the post 2012 part of it, is actually currently in surplus!

What needs to happen, is some sort of pension life styling, so an individuals pension is placed in less risky assets as they approach retirement. This whole collective investment strategy is a dead duck if you ask me.

You seem to want the best of both worlds Heapsy mate! More risky/rewarding investments as well as safe ones! :d'oh!

The whole point of CDC is that the majority of investments will be kept in riskier equities, rather than going down the bond/cash route as you approach retirement or for longer periods. Meaning a higher return over the longer term and a better outcome in retirement compared to DC.

A quality DC scheme with a decent range of funds should be provided. There's plenty of information out there to give people ideas.

DC schemes have got there place and can work well in conjunction with a DB scheme and/or the state pension, and are a great tool for enabling early retirement by utilising drawdown. Which is what my personal pension is for!

But the CWU campaigned on our behalf for a pension that provides an income during retirement, rather than just a pot of cash at the point of retirement with options.

The success or failure of CDC could come down to the number of members – the more there is, the higher the chance of it succeeding! So in my opinion, having the choice to join a DC alternative is an ideal for those that want that, but unlikely.

Royal Mail warns of industrial action if CDC is not achieved; completes buy-in for executives' pensions

20 Nov 2018, 11:54

Yes, but with long term funding being a major issue, can you really see the new scheme lasting. More part time, and fewer staff? I may be wrong here, but it wouldn't surprise me if RM, in time, take everyone down to around 30 hours, whether we like it or not. As people age, and some as you know will go early and claim their pensions, that will put more strain on the fledgling scheme. RM do NOT think long term when it comes to pensions. That will lead to insignificant growth. As regards the equities, surely it is possible to move some if not all of the gains to safer funds in order to protect what has been built up? The first sign of a problem and RM will look to change, or even close down the new scheme. A DC scheme, although it has its faults, would allow people to take more control.

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