Collective defined contribution pensions Contents

3Royal Mail agreement

34.The profile of CDC was raised significantly in February 2018 by a pioneering agreement between the Royal Mail and the Communication Workers’ Union (CWU) to pursue the creation of a CDC scheme for all employees of the company. This first concrete proposal for a CDC scheme in the UK was devised as a way of resolving a dispute over the future of pension provision in the company. The two sides wrote to us jointly in January “to underline our shared commitment to delivering such a scheme” which they believe “will provide employees with significantly better benefit outcomes than a traditional DC scheme, without the Company having to bear the balance sheet risks associated with a DB scheme”.92

Table 1: Timeline of events leading to Royal Mail CDC agreement


Royal Mail Pension Plan (RMPP), a DB scheme, closed to new members. Existing members could continue to accrue pension rights.

1 Apr 2012

Responsibility for historic pension liabilities were transferred out of the RMPP to the Government. This left RMPP fully funded. Royal Mail Group had ongoing responsibility for benefits accrued in the scheme from this date.

Jan-Mar 2017

Royal Mail consulted RMPP members about the future of the scheme.

13 Apr 2017

Royal Mail announced its decision to close the RMPP in March 2018 due to unaffordability. All future accrual was to move to a DC plan.

Late Oct 2017

Royal Mail and the Communication Workers Union (CWU) began negotiations on pensions, pay and working conditions, mediated by Acas.

28 Nov 2017

The Acas mediator’s report recommended both sides commit to pursuing the introduction of a single CDC pension scheme for all employees offering a target wage in retirement plus a defined benefit cash balance lump sum.

1 Feb 2018

Royal Mail and the CWU formally announced their agreement on the pensions deal.

31 Mar 2018

RMPP closes to new accruals, with an actuarial valuation surplus of £143 million.

1 Apr 2018

A new DB cash balance scheme is put in place as a transitional arrangement until the CDC scheme can be established.

Source: Royal Mail Pension Plan, Commons Library Briefing Paper, 18 July 2013; Royal Mail Plc annual reports

35.Royal Mail is one of the UK’s largest employers, directly employing around 142,000 people.93 Royal Mail’s DB scheme, the Royal Mail Pension Plan (RMPP), was closed to new members in 2008 but remained open to new accruals for existing members. On 25 March 2018, there were 83,000 Royal Mail staff actively contributing to the RMPP, while 47,000 employees were contributing to a separate DC plan.94 Though the RMPP was in surplus,95 the company expected that surplus to be “exhausted during 2018” and for ongoing costs to be unaffordable.96 The company announced in April 2017 that it would “regrettably” and “very reluctantly” close its DB scheme to all new accruals from 31 March 2018, to be succeeded by an improved DC plan.97 The CWU, which told us DC schemes lead to “uncertain outcomes” and “do not provide a decent standard of living”,98 pledged “the strongest possible opposition” to Royal Mail’s “inadequate” plan.99 The disagreement raised the prospect of industrial action in defence of DB accrual, as has been seen in many other workplaces.100

36.In October 2017, the two sides began negotiations over pensions, pay and working conditions and practices, mediated by Professor Lynette Harris of the Advisory, Conciliation and Arbitration Service (Acas). The mediator’s report in late November recommended that the two sides commit to pursuing the creation of a single CDC pension scheme offering a target pension in combination with a defined benefit cash lump sum. On 1 February 2018, the two sides publicly confirmed their commitment to work together towards this goal. The proposed CDC scheme will be available to all Royal Mail staff, not just those who were members of the RMPP. CWU members voted in favour of the deal by margin of 9 to 1.101

37.The proposal was positively received by the Government. The Minister told us that the Royal Mail and CWU “seem to be on the same page absolutely and as joined up as any employer and union organisation that we have seen for a very, very long time”.102 The partnership between company and union could potentially act as a model for other schemes. Royal Mail stressed the importance of unions in explaining and promoting CDC, saying that CDC may be “particularly well suited to workforces with a high level of union membership.103 Unite, the UK’s biggest trade union, said the Royal Mail scheme could be “a flagship demonstration of a better form of DC”.104

38.A CDC scheme is not yet, however, possible under UK legislation. The Government has challenged Royal Mail to develop a proposal and set out how it could be achieved with minimal change to the current legislative framework.105 Royal Mail sent a first draft proposal to the DWP on 9 March 2018.106 The Minister told us that, as the discussions were still in the “very early stages”, he could not “give any cast-iron guarantees”. He made clear, however, that the Government was “minded to assist”.107 Ronan O’Connor, Deputy Director of Private Pensions at the DWP, said that any legislation introduced as a result would not be limited to the Royal Mail scheme.108

39.Royal Mail Group and the Communication Workers Union are to be congratulated for their remarkable unity of purpose in pursuing a CDC scheme for all the company’s employees. As well as a model of constructive industrial relations, Royal Mail could act as a model for new collective pension schemes. The Government is rightly seeking to support the Royal Mail agreement and to future-proof its legislation to enable the introduction of CDC schemes at other companies. In doing so, it is opening the door for CDC to move from abstract idea to practical reality. In the next chapter we turn to the legislative change necessary to effect that change.

93 Written evidence from Royal Mail Group (CDC0033)

95 The RMPP (plus a smaller scheme for senior managers) had a £1.1 billion surplus as at 31 March 2017, but annual additional costs were estimated to be £1.26 billion.

97 Written evidence from Royal Mail (CDC0033)

98 Written evidence from Communication Workers’ Union (CDC0023)

99CWU condemns royal mail pension closure”, CWU press release, 13 April 2017 and written evidence from Communication Workers Union (CDC0023)

100 Recent examples of strike action over private-sector DB pensions include the Universities Superannuation Scheme (USS), Capita and BMW.

102 Q138 (Guy Opperman MP)

103 Written evidence from Royal Mail Group (CDC0033)

104 Written evidence from Unite the Union (CDC0006)

105 Q121 (Ronan O’Connor)

106 Q109 (Ronan O’Connor)

107 Q110 (Guy Opperman MP)

108 Q117 (Ronan O’Connor)

Published: 16 July 2018