Royal Mail moves ahead with CDC scheme

Royal Mail launched its consultation in September 2021, in which it laid out plans for the new Royal Mail Collective Pension Plan.

Under a CDC arrangement, members pool investment and longevity risk and contribution rates for employers and employees are set in advance.

The group finalised and confirmed its contribution rates in November, the employer paying in 13.6 per cent and employees having a standard contribution rate of 6 per cent.

The scheme will be an opt-out arrangement, with members who choose not to participate usually being enrolled in Nest instead. It will also contain a cash lump sum section, which, if accessed at the retirement age of 67, would give members a retirement income equal to at least 3/80 of the member’s pensionable pay for every year in work.

It was announced on February 15 that, following the consultation, Royal Mail with the CWU and Unite had agreed to press ahead with the new CDC scheme.

They issued a joint statement, which read: “Together we’ve designed a new pension plan that gives our people two things: a cash lump sum and a wage in retirement. The consultation on the pension changes is now complete and we’ve considered people’s feedback. We’re excited that this brings the collective pension plan a step closer to launch.”

A CWU blog post published on February 17 explained that the new plan “now only requires some final, minor legislative work before a formal application can be made to the Pensions Regulator to open the scheme”.

On a website launched to accompany the consultation, Royal Mail explained that new scheme was necessary because the older defined benefit arrangement had become unaffordable, while a traditional DC alternative would not have satisfied its desire, shared by the unions, to give people a wage in retirement.

Not all prospective members were entirely satisfied with the process, however. Several commenters under the CWU’s announcement on Facebook said that they still did not understand the proposed changes, while others criticised the handling of the consultation itself, one writing: “How was this a consultation? I received information in the post but that’s it!”

“There’s been no one who’s come around to our office to talk to us about it. There’s been no one for us to raise objections with, or questions: eg, why are they gambling 100 per cent of our money on the stock market?

“What if the people gambling with our money make consistently bad decisions, and we just lose money? I’m just not ok with this,” they said.

In response, a Royal Mail spokesperson told FTAviser’s sister publication Pensions Expert: “Together with our unions, we have worked hard over the past few years towards the creation of the Royal Mail Collective Pension Plan, which combines a CDC pension scheme and a guaranteed lump sum at the point of retirement for Royal Mail’s UK employees.