Royal Mail Pension Plan: Indexation

[POSTMAN]

Dear Colleague

Branches will be aware that the Government has announced that, with effect from 2011, pension increase orders should use CPI rather than RPI to determine the level of increase in pensions in payment and deferred pensions.

As well as those schemes directly controlled by the government, this decision has implications for other schemes including Royal Mail Pension Plans.

Section C of the Royal Mail scheme (formally known as POPs and applying to those joining the scheme from 1987 onwards) is clear that uprating is linked to RPI (subject to a maximum of 5%). Sections A and B however allow for the increase to be linked to the government pension increase order. Until now, the government has always used RPI and therefore increases in pensions in payment and deferred pensions for members of these parts of the scheme have been based on RPI. The next uprating, due in April 2011, will be the first under which government’s pension increase order could be based on CPI.

A change from RPI to CPI would, over a period of time, substantially reduce the value of our member’s pensions. This change would affect existing pensioners and also those with deferred pensions. It would not affect uprating of post 2008 pensionable pay under the career average arrangements introduced by the company in April of that year – the company had wanted to use CPI for this uprating but the union was successful in arguing for RPI. However active members would suffer a detriment once their pensions become payable.

A change from RPI to CPI for some parts of the scheme would therefore produce a number of anomalies. More importantly it represents a massive threat to the value of pensions based on service already accrued for thousands of members in sections A and B of the scheme.

The union has therefore met with Royal Mail and written to Royal Mail’s Chief Executive. We have made it clear that we continue to regard pensions as a negotiable issue and have urged Royal Mail to discuss the matter of indexation with the union before any discussion between the company and the trustees. We have also written to the RMPP Trustees outlining the reasons for our opposition to making future increases to Sections A and B pensions on the basis of CPI rather than RPI:

• This would be a clear and significant change from past practice and there has been no consultation with stakeholders or scheme members
• It would produce an anomalous situation because different measures of inflation would be used by different sections of the scheme
• Scheme literature issued to scheme members, including Section A and B members, refers to RPI as the measure used for uprating. There is therefore a clear understanding and legitimate expectation by members of all parts of the scheme that RPI will be the measure applied
• Such a change would amount to a “raid” on accrued benefits, because RPI has historically tended to be higher than CPI and this can be expected to continue in the future. This is not only because RPI includes costs of housing and CPI doesn’t but there is a “formula effect” by which the method of calculation produces a lower result in the case of CPI. The switch from RPI to CPI would therefore reduce the level of increase in coming years and the cumulative effect would be to substantially reduce the value of pensions.

We have therefore asked for an assurance from the trustees that RPI will continue to be used for all sections of the scheme, both pensions in payment and deferred pensions, for the uprating due in April 2011 and thereafter.

We are awaiting response from both the company and the trustees and will advise branches of further developments.

Any enquiries or questions should be directed to your Local Branch Office or your Local Rep who will get the information you required.
Yours sincerely

Dave Ward
Deputy General Secretary (P)

[easter bunny]

The Governement have abandoned their attempts to get Private Sector Pensions to switch their rate of inflation from RPI to CPI .. It would have proved impossible in such cases as RPI is inbeded to its rules...

As in Section C of the RMPP...

[fishtank]

It would have proved impossible in such cases as RPI is inbeded to its rules...

As in Section C of the RMPP...

...but not,it would seem sections A and B of the scheme.
So anyone with more than 23 years service is at risk....is that right eb?

[easter bunny]

Fraid so...Section A and B have the 'Government favoured index linked' which of course will be CPI next year. Until 1996 RPI was the only measure available until CPI was brought in.
CPI does not include Housing costs, so its not surprise it is 0.83 % lower than RPI year on year..

Section C has RPI or 5% in its rules....