Employees who work for postal organisation Royal Mail and are members of the Communication Workers Union (CWU) trade union, have voted in favour of strike action in an ongoing dispute over the planned closure of the organisation’s defined benefit (DB) pension scheme to future accrual.
Nearly three-quarters (73%) of the CWU’s 111,000 Royal Mail employed members participated in the ballot, which resulted in a 89.1% vote in favour of strike action.
Royal Mail offered affected employees a choice between a DB cash balance arrangement and a defined contribution (DC) scheme, as part of proposals put forward in July 2017. The new DB and DC schemes would be set up as new sections of the existing pension plan, replacing the current DB arrangement that will close to future accrual from 31 March 2018.
The DB cash balance scheme would provide its members with a lump sum at retirement. The DB scheme would involve members’ pension pots being credited with 19.6% of pensionable pay a year, including a 13.6% employer contribution and a 6% member contribution. Royal Mail would also contribute 2% for other member benefits, such as death in service and ill-health.
The DC option would also see the organisation contribute 13.6% of pensionable pay.
Both schemes would be effective from 1 April 2018.
In addition to the new arrangements, Royal Mail has proposed improvements to its existing DC plan from 1 April 2018. This would include increasing the organisation’s standard contribution by 1% in each tier, up to a maximum of 10%. This would apply to all current and future members of the scheme.
The CWU postal executive will meet later this week to determine the next steps of the campaign and potential strike dates.
A spokesperson at Royal Mail said: “Under its proposals, Royal Mail would continue to provide the best pay and terms and conditions in the industry by some distance. We are not proposing to change our core terms and conditions or our commitment to a predominantly permanent workforce. Many competitors pay around the national living wage. Royal Mail pays 45-50% more than this.
“We have offered to continue working towards a new pay deal, including an increase of up to 5% over two years, depending on productivity improvements, flexibility and a small number of trials. We are offering to replace our defined benefit pension scheme, the Royal Mail Pension Plan (RMPP), with another type of defined benefit scheme. RMPP members would also have the choice to join a defined contribution scheme instead if they wished to do so. We have also proposed significant improvements for members of the Royal Mail defined contribution plan, with a maximum [organisation] contribution of 10%.
“In 2013, Royal Mail and the CWU committed to the Agenda for Growth (AFG); a legally binding agreement. Royal Mail has brought to the CWU’s attention the contractual dispute resolution procedures included in the AFG, which both sides are required to follow once instigated. They escalate to independent external mediation, which we expect will take close to Christmas to be completed, and may be longer. The union cannot take industrial action until these dispute resolution procedures have been completed.”
Terry Pullinger, deputy general secretary, postal, at CWU, added: “This ballot result is hugely significant and demonstrates a strength of feeling that can only be translated as a massive vote of no confidence in the managerial leadership of the Royal Mail Group and the direction that they advocate.
“Any sense of vocational spirit and working together with management has been lost in a climate of fear and insecurity. This massive failure in trust has created a break down in relationships and a toxic environment where working together to solve difficult problems has become almost impossible. The managerial leadership has failed and should resign or be sacked. This is a dispute about honour and we refuse to simply stand aside.”
In a letter to Employee Benefits , Douglas Hamilton, head of pensions strategy at Royal Mail, wrote: “Royal Mail has by far the best pension arrangements in the delivery industry. Over 60% of Royal Mail employees in the UK are in a defined benefit pension scheme. The figure for the UK private sector as a whole is under 5%. Unfortunately, our current defined benefit scheme is just not affordable. If no changes were made, annual contributions would increase next year from around £400 million to around £1.2 billion. That increase is at least three times more than our annual free cash flow. That’s on top of what we already pay into the scheme. No business could do that.
“We have never hidden the fact from our defined benefit scheme members that the benefits they build up from April 2018 will be smaller than they are now. That’s because the [organisation] cannot afford the plan in its current form. But with our current defined benefit cash balance proposal we have moved a long way compared to the defined contribution proposal we originally put forward. Furthermore, this is not about cost-cutting. Royal Mail will continue to pay broadly the same in pension contributions after its proposed changes as it does now.
“The CWU came forward with a wage in retirement scheme, but, unfortunately, this scheme would not be sustainable, secure or affordable for the [organisation] or our employees. The CWU’s scheme is an attempt to set up a defined ambition type scheme within the current defined benefit regulatory framework. Unfortunately that just doesn’t work. Further, if our current defined benefit scheme had adopted the CWU’s proposed investment strategy in 2012 the [organisation] would already have had to close the scheme to future accrual, rather than being able to meet its commitment of keeping it open until March 2018,
“In short, we’ve put forward a proposal which provides a good and fair outcome for members of our defined benefit pension scheme. We’re also proposing increasing Royal Mail’s contribution to the Royal Mail defined contribution plan, which benchmarks very well compared to other large employers in the UK.”