Stephanie Baxter says the CWU's proposal for a risk sharing scheme at Royal Mail is a breath of fresh air at a time when there are growing concerns about DC.
When the government dropped Steve Webb's plans for defined ambition, it seemed to be the end of the debate on ‘risk sharing' schemes.
So it came as surprise to learn about the Communication Workers Union's (CWU) proposal for Royal Mail to create a new scheme for both defined benefit (DB) and defined contribution (DC) members that would share some financial risks between employees and employer. The sponsor would offer a guaranteed minimum wage in retirement, thereby paying set contributions, but inflation-linked increases would only be dependent on investment performance.
The idea has generated a lot of interest by its attempt not just to retain an element of DB when Royal Mail wants to close down the scheme, but also to bridge the gap between DB and DC.
Many are now speculating that if the postal service goes ahead with the CWU's proposal, it could set a blueprint for others to follow.
However, there are some challenges. The company would still need to fund the guarantee and so would be on the hook for higher contributions where investment performance is very poor. There could be safety valves in place, for example if the employer's ongoing cost rises there could be a period where member accrual falls.
Another concern would be regulation changing in future that would make this risk sharing scheme - which is actually possible under current rules - less attractive for the sponsor.
Despite the hurdles, the CWU's proposal is a breath of fresh air at a time when there are growing concerns about DC, and should be considered. Once one employer jumps on the wagon, more may follow.
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