Royal Mail PLC has updated its offer to participants in relation to the freezing of the Royal Mail Pension Plan, London, effective March 31, 2018.
The postal group provided the update on its 2018 Pension Review on Friday, following extensive talks with its unions regarding the future of the £9.6 billion ($12.4 billion) pension fund.
The company is offering participants a choice between a cash balance plan and a defined contribution plan, set up as new sections of the existing defined benefit fund. Royal Mail is also offering to improve its existing DC plan.
The proposal would be funded within the current £400 million annual retirement contribution. "Royal Mail believes that the risk to the company of the proposed defined benefit cash balance scheme would be materially lower than under the current plan and is a manageable risk for us," the update said.
Participants will have the option of joining either the DB cash balance plan or the new DC plan. "Royal Mail is one of few companies offering to replace one defined benefit scheme with another," the update said.
Under the offer, Royal Mail would contribute 13.6% of a participant's pay to the new cash balance plan, up from 12.6% in its initial proposal. The company would contribute a further 2% for other benefits, including death in service and ill health. Participants would contribute 6%.
The new DC plan would also receive a 13.6% contribution from the company.
Royal Mail said it is ready to make improvements to its existing DC plan. Starting April 1, 2018, it proposes to increase the company's standard contribution by 1% in each tier, up to a maximum of 10%. The change would apply to all current and future Royal Mail Defined Contribution Plan participants. The size of the plan could not be learned by press time.
Trade union CWU said in a statement later Friday that it rejected the latest proposal from Royal Mail. "It does not meet our aspiration of a wage in retirement pension scheme, but rather still promotes the conventional wisdom of a cash-out arrangement at the point of retirement," said Terry Pullinger, deputy general secretary postal.
The CWU issued a counterproposal that was based on investing 100% of the portfolio in riskier assets such as stocks.
Royal Mail said in a statement responding to the CWU: "We very much appreciate the care that the CWU applied to its proposal. But, unfortunately, it does not meet the fundamental principles underpinning our 2018 Pension Review. They are: sustainability, affordability and security."
The statement added the CWU proposal of investing in risk assets "is too risky. We also calculate the CWU proposal would cost significantly more than we can afford. Within six years, the CWU scheme's liabilities could be larger than the value of the company today and continue to grow quickly."