Royal Mail Group, London, will close its defined benefit pension fund to new members April 1, spokesman David Simpson confirmed. The fund had £23.5 billion ($47.2 billion) in total assets, a £5 billion deficit, as of March 31, 2007, according to the latest annual report of the U.K. post office. As part of the plan to cut costs, benefits for existing members will be linked to a career-average salary rather than final salary, effective April 1, Mr. Simpson said. The company also will reduce annual contributions to 21% from 30% of the aggregate salary that counts toward the pension benefit, which was estimated at about £850 million in 2007.
Changes are unavoidable given increasing longevity and the higher costs of providing the current pension plan, said Jon Millidge, Royal Mails interim group human resources director, in a news release about the announcement.
The retirement age, currently 60, will increase to 65 for benefits earned after April 1, 2010, according to Mr. Simpson. Royal Mail will introduce a defined contribution plan by April 1, 2009, since new employees must remain at the company for at least a year before being eligible for pension benefits.