First ever CDC scheme approaches following Royal Mail/union pension deal

The UK has moved closer to its first ever collective DC scheme following a breakthrough in negotiations between Royal Mail and the Communication Workers Union (CWU) today.

Business-Handshake-Meeting-Deal-Low-Angular-700x450.jpgThe CWU’s Postal Executive will now recommend a CDC plan to the union’s 110,000 postal members in a forthcoming national ballot.

Royal Mail will launch a cash balance scheme at the end of March 2018 when its DB scheme closes, making a 13.6 per cent employer contribution, with a 6 per cent employee contribution. It says it also wants to launch a collective DC scheme, subject to the necessary legislation being put in place.

The new DC arrangement comes in alongside a three-year pay deal and two-hour cut in the working week worth 12.33 per cent overall. CWU deputy general secretary Terry Pullinger says: “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.”

Hargreaves Lansdown head of policy Tom McPhail says: “As an employee, if you’re going to lose your final salary pension scheme, this is a pretty good way to do it. The ongoing employer contributions at £400 million and 13.6% of salary are very generous compared to the majority of Defined Contribution schemes. For members of the Cash Balance scheme there will still be an element of certainty around their benefits. The plans to launch a CDC scheme will be watched with keen interest by the pensions industry, which has very mixed feelings about the viability of such schemes.”

Aon senior partner Kevin Wesbroom says: “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 they have 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.”