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Royal Mail looking into introducing cash balance plan

Royal Mail PLC is considering a new cash balance plan for participants once its defined benefit fund is frozen on March 31, 2018.

The company announced April 13 it would freeze the £9.6 billion ($12 billion) Royal Mail Pension Plan, London, subject to approval by the trustees. The decision followed a consultation with participants and work with trade unions as part of a 2018 review. It had previously said the current fund “will soon not be affordable.”

Royal Mail said in a statement Friday it is looking at options for the accrual of retirement benefits after the pension plan is frozen, including a DB cash balance plan, building on a proposal by the Communication Workers Union. Participants also have the option of joining a defined contribution plan. A spokesman for Royal Mail said the DC plan was the original proposal by the company, and it is now looking at the DB cash balance plan. This original proposal called for adding a DC section to the existing DB fund or transferring participants into the existing Royal Mail Defined Contribution Plan, London.

The new cash balance plan would pay out a guaranteed lump sum at retirement, and participants would be guaranteed to receive the total value of contributions paid toward the lump sum up to retirement. Discretionary increases would also be applied up to retirement, subject to the investment performance of the plan. These increases would also be guaranteed, once applied.

“Having reviewed matters with its actuarial advisers, the company believes that the risk to the company of the proposed defined benefit cash balance scheme would be materially lower than under the current plan,” said the statement. “The company would also take steps to manage risk further through an appropriate investment strategy and a proportion of the company contributions would be held as a pension risk reserve for additional security.”

The company will continue to discuss the future of the plan with its unions and will write to participants once more decisions have been made.