Postal organisation Royal Mail has confirmed a new pay and pensions deal for 110,000 postal employees, including a backdated 5% pay increase and the introduction of the UK’s first collective defined contribution pension scheme.
The deal, which was agreed with the Communication Workers Union (CWU), includes a 5% pay increase for full-time employees, covering base pay, overtime and allowances. The pay increase will be backdated to October 2017 and maintained throughout 2018-2019. From April 2019, employees will receive a further 2% pay rise. Part-time staff will receive a 2.6% increase in their hourly rate of pay, awarded in October 2018 and October 2019.
In conjunction with the pay increases, a reduction in working hours has also been agreed. From October 2018, there will be a one hour reduction to employees’ current 39-hour working week, and from October 2019 an additional hour will be removed from the working week. These reductions are subject to the completion of trials and the successful implementation of set initiatives. Royal Mail has committed to move towards a 35-hour working week by 2022.
Pension changes as part of the new deal include closing the Royal Mail Pension Plan (RMPP) to future accrual in its current form on 31 March 2018. This will then be replaced by a new collective defined contribution (DC) scheme, subject to the required legislative changes, which will run alongside a defined benefit (DB) cash balance scheme. Under these arrangements, Royal Mail will contribute 13.6% of a member’s pensionable pay.
Transitional pension arrangements will be implemented from 1 April 2018. This will include the introduction of a defined benefit cash balance scheme for RMPP members, with Royal Mail contributing 13.6% of pensionable pay towards members’ retirement lump sums, and a further 2% for all other member benefits, including death in service and ill health. RMPP members will continue to contribute 6% of their pensionable pay towards their retirement lump sums.
Members of Royal Mail’s defined contribution plan, who have a minimum of five years’ service, will also have the option to join the DB cash balance scheme. In addition, Royal Mail will increase its contributions to its DC scheme at each standard contribution tier by one percentage point, and all future and current DC pension scheme members in the standard section of the plan will be moved to the top tier of contributions to receive a 10% contribution from the organisation, and contribute 6% themselves.
The ongoing annual cash cost of pensions will continue to be approximately £400 million. The pension changes have been designed to provide a similar level of member benefit as the previous DB provision, while significantly reducing risk for the organisation.
The deal also includes operational changes.
Moya Greene, chief executive officer at Royal Mail, said: “This agreement marks a new chapter for Royal Mail and the CWU. Following the conclusion of a helpful mediation process and further talks, we have delivered the right result for Royal Mail and our stakeholders. This is an affordable and sustainable solution that enables us to continue to innovate and grow and to meet the intense competition with confidence.
“Royal Mail and the CWU will continue to work together as we build on our position as the leading delivery [organisation] in the UK. I’m pleased that, under this agreement, we will continue to offer the best terms and conditions in the delivery industry by some distance.
“Both Royal Mail and the CWU have shown that disputes can be resolved without recourse to damaging industrial action. Our people’s commitment to serve customers throughout this period has allowed our good trading performance to continue. This means we now expect to deliver adjusted group operating [profits] before transformation costs of at least £680 million for 2017-2018.”
Terry Pullinger, deputy general secretary, postal at CWU, added: “This agreement represents the successful outcome of months of talks and is testament to the strength of membership support reflected in the union’s huge vote for strike action in October last year. The success of our campaign has delivered a substantial pay rise, a shorter working week and a pioneering new pension scheme that will secure our members’ future employment, standard of living and retirement security.
“In the face of the tough challenges Royal Mail faces from gig-economy competitors, unfair regulation and automation, we have reached a settlement that builds a bridge from our current agreements to the future, is progressive and reflects leading-edge solutions in a challenging modern setting. It will also ensure that any future change is managed through a process of evolution not revolution that will protect the interests of members. The CWU therefore welcomes the [organisation’s] commitments to re-establish the principles of security, maintain industrial stability and restore our mutual interest culture while protecting the future of a great public service.”
Kevin Wesbroom, senior partner at Aon, said: “Royal Mail and the CWU have identified a ground-breaking approach to pension provisions. Aon has long been an advocate of the collective defined contribution (CDC) scheme [it has] committed to, and we have lobbied hard for their introduction, building on our global experience of these plans.
“CDC fills a gap in the market of current pension provision. Individual members do not bear all of the longevity, inflation and investment return risk as they would with a conventional DC scheme. Instead, demographic and financial risks are pooled across the membership. At the same time there is a fixed cost to the employer, none of the open ended commitment associated with DB schemes.
“Members receive a lifetime income in retirement, paid directly from the scheme’s asset pool. This means members do not need to take on the risk of buying an individual income product, such as an annuity, where low rates at the point of retirement lead to a permanent impact in members’ retirement funds. They also do not need to make complex financial decisions if they do not wish to, unlike conventional DC pensions.”