Royal Mail and the Communication Workers Union (CWU) have told the government to introduce legislation to allow companies to offer collective defined contribution (CDC) schemes, following the agreement between the two to offer Royal Mail employees a CDC scheme.

In a joint letter to the Work and Pensions Committee dated, 31 January 2018, Royal Mail Group HR director Jon Millidge, and CWU (Postal) deputy general secretary Terry Pullinger, urged the government to introduce the legislation.

“We believe that now is the time for the government to introduce the required legislation so that companies such as Royal Mail have the ability to offer CDC type schemes to their workforce,” the letter read.

On 1 February, the CWU revealed it had endorsed the terms of an agreement on pensions and pay with Royal Mail Group. Following months of talks, the deal, which has been unanimously agreed by the CWU’s postal executive, will be recommended to the union’s 110,000 postal members in a national ballot.

In a video update to members in January, Pullinger confirmed that the union had reached a “negotiators agreement with Royal Mail Group on all of the issues of concern.” The agreement was then passed on to the Postal Executive, whereby it was assessed in a two-day executive meeting.

The new pension scheme will be the UK’s first collective defined contribution pension and will offer a guaranteed cash lump sum. However, the scheme will be launched subject to necessary legislation. In the letter, Millidge and Pullinger said they are keen to offer the scheme as soon as possible, but they need the government to introduce legislation.

“While we would support enactment of the full CDC legislation set out in the 2015 Pensions Act, we are currently exploring how we could introduce a collective scheme without enacting all of the 2015 secondary legislation, given the constraints on parliamentary time.”

Royal Mail’s DB scheme will close on 31 March 2018, and instead the firm’s cash balance scheme will offer a 13.6 per cent employer contribution and contributions for members of the existing DC scheme will be increased.

Royal Mail and CWU said the CDC scheme they hope to introduce will be based on a collective structure which shares risk between employees and the company. Members will receive a combination of a target income based wage in retirement pension and a DB cash lump sum.

“We believe that our proposed collective scheme 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,” they said.

The letter also suggested that Royal Mail and the CWU will be appearing before the Committee to give joint evidence on CDC schemes, however there are currently no public meetings scheduled as part of the inquiry.

The inquiry, which was launched in November 2017, will consider the merits of CDCs, the role that they could play in the pensions landscape, the potential benefits to savers and the wider economy and the legislative and regulatory framework that would be required to successfully implement these schemes.

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