CWU: Royal Mail CDC possible without legislation

Existing defined contribution (DC) legislation could instead provide the framework for CDC - although some legislation may still be needed - the union claimed as it said it has reached a "negotiator's agreement" with Royal Mail for such a scheme.

CDC has been suggested as a "pragmatic" solution to Royal Mail Pension Plan's worsening funding position.

The company last year announced the plans to close the defined benefit (DB) fund after predicting contributions to the scheme would surge from 17% to 50% of pay, using up the entirety of the scheme's actuarial surplus recorded in its 2015 triennial valuation, without taking action.

While it would not eliminate any potential future deficit in the scheme, closing and replacing it with a CDC arrangement would limit any growth while providing more security and certainty to employees about their retirement provision, the CWU has argued.

The proposed agreement, described as being "on the cusp of something special", is now expected to be put to members shortly, although it may take some time for the scheme to be set up, especially as some legislation will still be required.

Speaking at a Westminster Business Forum conference on 25 January, deputy general secretary for postal Terry Pullinger, who has been leading the CWU's negotiations with Royal Mail, said waiting for full CDC legislation "could take anything up to three years".

The government in 2015 introduced legislation setting out defined ambition schemes - which CDC has been touted as an example of - as distrinct from DB and DC, but additional legislation is needed to fully enable it. The CWU believes existing DC legislation can instead be tweaked, avoiding full legislation.

"Some of the work we are doing and who we are trying to work with [say] that it won't require the full secondary legislation," he said, explaining the framework could to some extent be enabled through existing DC legislation.

"If it is possible that the current DC legislation could serve to enable us to do this, then there might be a shortcut for us going first. It is absolutely crucial."

It would be important to set the scheme up as quickly as possible, Pullinger warned however, or members' trust would be damaged, cautioning: "If nothing has changed within a year, or we can't see it coming into the horizon, then we have to take a judgement to see if our dispute is actually resolved or not."

"Can you imagine us explaining to the members ‘we have this deal but it might never arrive'?" he asked, before adding: "I don't see there should be inertia on this. We need to get something going."

Pullinger revealed that the proposed arrangement would include a DB element, which would be paid out as a 25% tax-free lump sum, while a "wage in retirement" aspect would be accrued under a CDC arrangement, based on a 3/80^th accrual rate. Within the scheme, into which all staff would be auto-enrolled, benefits would be uplifted on an annual basis, with the scheme confirming once a year what the uplift would be.

Pullinger said, for this reason, it was important both the employer and the unions were "honest and upfront" with members.

"We want to do this; Royal Mail wants to do it," he continued. "Someone has to go first if you want to make a difference. We may stumble and fall [but] I would like to believe we could do huge justice and give this community something to learn by. We believe that it is the right answer for us."

He warned, however, that CDC may not be the "answer for everybody" but hoped Royal Mail would provide some evidence of its viability.

His comments came as the Work and Pensions Committee's inquiry into CDC schemes continues, with a report due later this year.

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• Topics
• Defined Contribution
• Law and Regulation
• Collective Defined Contribution
• CDC
• Terry Pullinger
• CWU
• Communication Workers Union
• Royal Mail
• Royal Mail Pension Plan