Nearly 100,000 workers at the Royal Mail and the Post Office are likely to be the victims of turmoil in markets as the companies plan big cuts to their “simply unaffordable” pension schemes, reports The Guardian.
One manager in his 40s at the Post Office was told that his projected pension at retirement will collapse from £38,000 a year to just £18,000.
Currently, Royal Mail pays around £400m a year into its “defined benefit” scheme, which guarantees a pension based on a postal worker’s average salary over his or her lifetime, rather than what happens on the stock market.
But the company said financial market conditions had deteriorated so much that the cost of keeping the plan fully open would balloon to £900m over the next few years. Although the cuts were first mooted just before the EU referendum, historic lows in bond markets since the vote have made the pensions even less affordable to companies.
The Post Office pension scheme is facing a similar cut, but with changes coming through one year ahead of the Royal Mail. The Post Office remains in the public sector after the Royal Mail was split off and privatised in 2012; their pensions schemes are identical in most respects.
A Post Office spokesman said the changes to the pension scheme were announced in February.
A ballot among Communication Workers Union (CWU) members of the 3,500-strong Crown Post Offices pension scheme is expected to agree to strike action when the result emerges next week. Unite is also planning a ballot starting on 15 August of its members in the Post Office.
Royal Mail bosses are now braced for a similar backlash over its much larger pension scheme, which has about 90,000 workers affected by the cuts.
Andy Furey, CWU national officer, said: “We are confident of a big yes vote to the ballot from Post Office workers. Our members have been receiving projections about what it means to their pensions, and there has been a huge outcry. They are really, really angry.”
Big cuts to final salary pensions are coming not just at former state-owned enterprises but also at the few private companies that still operate so called “gold-plated” schemes. Marks & Spencer is currently consulting on cuts that will affect the pensions of about 11,000 longstanding shop workers.
At both the Royal Mail and M&S, final salary-style pension schemes have already been closed to new joiners, but existing staff have continued to accrue benefits and retire with a pension based on their final salary. It is these future accruals that are now under threat.
It is understood that the Royal Mail and Post Office defined benefit schemes cost the employers the equivalent of 45 per cent of salary. M&S said its pension scheme costs 34 per cent of salary, but that the proposed replacement would be capped at a maximum of 12 per cent.
The companies argue that the cost of maintaining the pension schemes has become unsustainable, in part because of big increases in longevity but also because of falls in gilt and bond yields, which mean they have to pay in more to keep them financially afloat. These gilt and bond yields have hit historic lows since Brexit, making the pension schemes even more expensive to maintain.
In a statement, the Royal Mail said: “We understand how much our people value their pension benefits. We committed to keep the Royal Mail pension plan open to future accrual on a career average basis for existing members without further changes, at least until March 2018.
“Early indications from the latest triennial valuation of the plan suggest that the company’s contributions to the pension plan each year would have to increase from around £400m to over £900m. Such an increase in costs is not sustainable. We are talking to our unions about the future of the plan after March 2018.”
Pensions experts warn that the likely outcome of a review of the Royal Mail and M&S pensions will be significantly less generous “defined contribution” style schemes, where the outcome is dependent on the performance of the stock market, without any guarantees on the level of income on retirement.
But Royal Mail will face the challenge of explaining why it needs to slash its pension, when the scheme is one of the few major ones in the UK which has been running a surplus. It says the surplus will disappear by 2018.
Unions say an agreement struck in 2012 allowed the Royal Mail to keep its pension contributions at just 17.1 per cent of salary, and use the surplus in the scheme to finance the gap.
Royal Mail reported a 5 per cent rise in profits to £742m in the UK in the year to March 2016 and awarded its chief executive, Moya Greene, an annual pay package of £1.5m, similar to the year before.
