Future of the postal service threatened by unresolved pensio

[TrueBlueTerrier]

Future of the postal service threatened by unresolved pensions issue

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Unions are right to protect member benefits, but must take into account changes to other public sector pensions

The government is looking at a substantial fly in the ointment vis-a-vis its planned Royal Mail sell off in the shape of a persistent multi-million pound pension bill.

Even though the Treasury absorbed a staggering £38bn in DB pension liabilities just one year ago, the future cost of continuing to provide postal workers with the scheme’s gold-standard benefit is set to de-rail the government’s proposed sale of the Royal Mail.


The government predicts the cost of providing final salary benefits from April 2012 will amount to £20m a year; an expense that would, according to a letter sent by Post Office Company to scheme members, “reverse the cash benefits of last year’s pension transfer and put considerable strain on our business and its commercial viability”.

Consequently Royal Mail proposes linking future pension increases in line with RPI inflation, with a cap of 5%, irrespective of a member’s pay rises.

The suggestion – which Royal Mail argues avoids numerous ‘unattractive’ options including raising contributions and retirement age – has been met with outrage by the postal workers union.

Any attempt by either company [Royal Mail Group and Post Office Company] to take executive action on pensions will be met with a national industrial action ballot across the postal constituency

The Communications Workers Union (CWU) immediately threatened strike action with deputy general secretary Dave Ward warning: “Any attempt by either company [Royal Mail Group and Post Office Company] to take executive action on pensions will be met with a national industrial action ballot across the postal constituency.”

It is entirely right that the CWU is defending the Royal Mail DB members from benefit erosion but the public reaction may be a little less sympathetic.

Royal Mail makes clear it had options it had considered included closing the DB plan entirely, asking for greater contributions, forcing workers to retire later and reducing future benefits.

The final proposal looks relatively fair, especially when one considers all those employees who have seen their DB schemes closed to all future accrual

Given this list of options, the final proposal looks relatively fair, especially when one considers all those employees who have seen their DB schemes closed to all future accrual or their expected retirement date stretch away from sight.

Doctors, teachers, civil servants, fire fighters have all seen their final salary provision altered. Millions of workers across the private sector have watched their DB schemes turn to DC while millions more are yet to start saving anything for their retirement at all.

It is unfortunate that the nation’s postal workers have to face any change to benefits but they remain in the enviable position of having their full benefits guaranteed by the government up to March 2012.

The affordability of the Royal Mail scheme is debatable but undoubtedly it has a detrimental effect on profits and is certainly unattractive to any potential shareowners if the flotation were to go ahead.

The whole future of the postal service could be thrown into doubt unless the difficult pension issue is resolved

The whole future of the postal service could be thrown into doubt unless the difficult pension issue is resolved, and that is likely to mean at least some change to the scheme.

Royal Mail will now enter consultations with unions and members to thrash out a suitable solution, which will likely prove painful for both sides.

It is crucial the unions show some pragmatism during negotiations and take on board the changes that have occurred elsewhere in the public and private sectors.

Without level-headedness and a touch of reality, postal workers could lose public support and see the future of their company on shaky ground.

[nataddick]

I think somebody needs to put all these journalists right about our 'gold plated' pensions !
The CWU media department should explain that the final salary scheme was changed to career average.Retirement age increased and that our pensionable earnings are reduced by the lower earnings deduction of approx £3,300 ! Not gold plated - more brass!

[RobertT]

Retirement age increased and that our pensionable earnings are reduced by the lower earnings deduction of approx £3,300

The LED reduction is a fairly common thing in the pensions world and was frozen by RM around 1999/2000 I think, at £3,328. Had they not done that it would now be £5,668 and it only applies to Section C members.

[nataddick]

Robert - I am a section C member and was aware of the LED postion in so far as it affects colleagues in this part of the plan. Wasn't aware that it did not apply to sections A/B, so thanks for that. A mate of mine at RM has just taken his NRA 60 benefits from section C after 23 years service, so I guess section A/B members must have service somewhere in excess of that !

I worked in financial services for 30 years, prior to joining RM and in my experience both administering and selling private company and personal pensions - the LED from pensionable salary is very rare. I have been a member of 4 final salary schemes myself and my wife who has extensive experience in financial services compliance has never come across an LED deduction as an effective means of reducing final salary.

I appeciate that final salary schemes are starting to become extinct - but our scheme is by no means 'gold plated' and is, in any event, capped by our relatively low wage structure.