Royal Mail PLC workers could go on strike to protect their pension benefits after the operator of the U.K. postal service said it might not be able to keep the fund running beyond 2018, a union leader said.
The company failed to consult the Communication Workers Union before sending a letter to employees in June that said the pension plan had become unaffordable and might have to be scrapped in two years, union deputy general secretary Terry Pullinger said. The union will take “the strongest action possible” — including strikes, if needed — to oppose the freezing of the defined benefit program, he added.
“This is people's lives,” said Mr. Pullinger, whose union says it represents 134,000 workers at Royal Mail and other employers. “The effects of closing that scheme would be massive.”
The U.K.'s June 23 vote to leave the European Union and the Bank of England's subsequent interest rate cut have deepened a pension crisis at many companies by reducing investment income. Pension deficits increased by more than 40% in the two months through the end of July, with liabilities reaching a record high of £856 billion ($1.1 trillion), according to Mercer.
The effect on pension plans might not be immediate because they conduct valuations over three-year periods to determine contributions. Royal Mail is in the middle of such a review.
A statement from Royal Mail said “early indications” show contributions to the plan would have to rise to more than £900 million annually from around £400 million.
“Such an increase in costs is not sustainable,” the company said in the statement.
Mr. Pullinger said it was “concerning” that the “mood music is that this is already decided. It's not in keeping with the agreements we made when the company was privatized” in 2013. He said official consultations over the plan, which closed to new members in 2008, had not begun. The plan had £6.5 billion in assets as of March 31, 2015, according to its annual report.
“Current financial market conditions suggest that keeping the plan open to accrual in its current form beyond 2018 will not be affordable," Royal Mail said in its annual report in June. Mr. Pullinger said the union wants to see that target date pushed back “on the basis that the economy will eventually recover.”
