Royal Mail PLC has launched a consultation with the 90,000 participants in the Royal Mail Pension Plan, London, regarding the future of the defined benefit plan.
The company has been reviewing the future of the £9.6 billion ($11.8 billion) pension fund with its trade unions as part of a 2018 pension review, said a statement provided by a spokesman. The participant consultation has been launched as part of that review.
The firm wrote to participants in June to communicate that it believed the current fund “will soon not be affordable.”
It had been looking for ways to keep the fund open beyond March 2018 but said in the statement it has not found “an affordable way of doing this so far.”
Royal Mail proposes freezing the defined benefit fund in April 2018 and transferring participants to a defined contribution plan — either by adding a DC section to the existing DB fund or into the existing Royal Mail Defined Contribution Plan, London. Further details, including the size of the existing DC plan, could not be learned by press time.
Active participants as of March 31, 2018, will receive a one-time £750 payment under the proposal, which may be contributed to their DC plan or taken as cash under the proposal.
Royal Mail said the proposal is necessary because it expects the current surplus, £1.6 billion as of Sept. 30, will run out in 2018, even with the current cash contributions of £400 million per year. Its most recent financial review indicates that the contribution rate will increase to more than 50% of pensionable pay, vs. around 17% currently. “This would more than double the company's contribution after March 2018 — to more than £1 billion — if participants continue to build up benefits on the current basis beyond that date. This increase would not be affordable,” the statement said.
The consultation period ends March 10, and Royal Mail said it will consider participant feedback and discuss it with unions as part of the review process.
“We know how important pension benefits are to our people,” said Jon Millidge, Royal Mail Group's group human resources director, in the statement. “We are sorry that their current arrangements will soon not be affordable. We believe our proposal would be a fair outcome; it is the best option available. It is a very competitive pension package compared to the industry and other large employers. It is about continuing to provide sustainable, good-quality pension benefits and as many high-quality jobs as possible. We will carefully consider all viable options put forward by members or their representatives.”