UK - Royal Mail is to close its final salary scheme to new employees, following consultation, and has unveiled plans to fund its £6.6bn pension deficit over 17 years.
The cost of servicing the pension fund continued to be a “major drain” on the group’s financial performance over 2006 and the £730m annual cost was said to be “threatening the company’s competitiveness”.
Royal Mail chief executive Adam Crozier said: "To ensure the problem does not get worse for the company or our pension fund members we will now begin a six month consultation on replacing the final salary pension scheme for new recruits with a defined contributions scheme, and on the best way to safeguard an affordable final salary scheme for our existing employees."
The company also reached an agreement in principle with the pension fund trustees to fund the £6.6bn deficit over 17 years. It claimed increased payments into the fund were already underway.
The Communication Workers Union (CWU) reacted angrily to the news and said the announcement came as a "complete shock".
CWU deputy general secretary Dave Ward said: “We have not been involved in discussions on this issue nor have we even been made aware of these intentions. The Government and Royal Mail have had a responsibility to discuss the future of the pension scheme with us and they have failed to do so.”
Aon Consulting principal and actuary Paul McGlone commented on the deal.
He said: “While reflective of what is going on in the UK market, today’s announcement by Royal Mail is interesting because of its quasi-public sector status. Now the government has recognised the need for limiting the pension liability going forward, it will be interesting to see if it will act on the vastly bigger problem of public sector pensions.”
He concluded that the trend for UK companies to close their DB schemes was bound to continue.
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