Royal Mail will shut its pension scheme next year but talks are continuing over a union counter-proposal

 
Oliver Gill
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Royal Mail's pension scheme has around 90,000 members (Source: Getty)

Royal Mail has decided to shut its mammoth pension scheme next year, saying the cost of keeping it open could be crippling.

However, it is understood the closure will not end talks over a counter-proposal put forward by the unions.

Unions have formally condemned the move by Royal Mail, repeating threats of industrial action.

The former state-owned firm revealed its plans this morning after initially floating the idea of a closure in January. It opened a consultation on the matter, which closed on 10 March and has subsequently engaged with unions on the matter.

Read more: Four reasons why Royal Mail shares have failed to deliver

In a statement to the stock market, Royal Mail said: "We have concluded that there is no affordable solution to keeping the Plan open in its current form. Therefore, the company has come to the decision that the Plan will close to future accrual on 31 March 2018, subject to trustee approval."

Although the pension scheme is currently in surplus, Royal Mail has estimated it will fall into deficit in 2018. Given the size of the scheme, the current cost of servicing a final salary scheme will rocket from the current £400m each year to over £1bn, the company warned.

The decision was signposted by Royal Mail at the start of the year and prompted a stern response from the CWU, the main postal workers' union, which represents 100,000 of the firm's workforce.

CWU deputy general secretary Terry Pullinger said in January that "unagreed" changes to the pension scheme "would be met with an industrial action ballot".

Hybrid Plan

However, after the consultation, the CWU took the unusual step of preparing a counter-proposal to Royal Mail instead of digging its heels in.

City A.M. understands today's news of a closure of the current structure does not signal an end to efforts between the two parties to agree a third way.

Unions worked with external pension consultants to hatch a hybrid plan that would transfer existing members to a new pension scheme with a more aggressive weighting towards riskier assets and no guaranteed annual increases in member payouts.

Instead unions will get round the table with the company each year to decide what the scheme can afford to pay members.

The Royal Mail statement simply referenced the following:

Royal Mail has reviewed the consultation feedback received from members and its unions, the CWU and Unite/CMA.

This includes a proposal put forward by the CWU. Sustainability, affordability and security are the principles the Company employed when reviewing the consultation feedback.

Read more: Royal Mail pensions closure: £1bn a year is just "not affordable"