The proposed Royal Mail collective defined contribution scheme will deliver the “best possible pension arrangements” for members, it has been argued.

In response to recent critique regarding Royal Mail’s proposed CDC arrangement, the employer has defended its position and ambition for the scheme’s success.

Speaking to Pensions Age, a Royal Mail spokesperson explained that the employer acknowledged the fact that legislation is required first to enable the introduction of the scheme. Responding to criticism that the scheme lacks legal definition and regulation, Royal Mail noted that it is lobbying to make legislative changes to permit the scheme's introduction.

“As the provider of around one in every 190 jobs in the UK, Royal Mail is committed to delivering the best possible pension arrangements for our people. With the Communication Workers Union (CWU), we have committed in principle to the future introduction of a CDC scheme for all Royal Mail employees…We agreed with the CWU to jointly lobby government to make the necessary legislative and regulatory changes so a CDC scheme can be established”, Royal Mail said.

The spokesperson also added that contrary to the opinion that CDC schemes are incompatible with the pension freedoms, it could be understood that both are intended to work together. She highlighted that both the Freedom and Choice reforms and the primary legislation for CDC were introduced under the 2015 Pensions Act and could be utilised cohesively.

In addition, Royal Mail reiterated that it will be enrolling members into a defined benefit lump sum scheme (DBLSS) alongside the CDC scheme. This would be a DB scheme with contributions from both the employer and employee, with monitored investments.

Royal Mail legal director pensions and employee benefits Richard Poole detailed to Pensions Age in April this year that: “The CDC scheme would provide members with a target income during retirement, with the DBLSS providing a guaranteed lump sum at the point of retirement.”

He added that while the CDC scheme would pool risk amongst its members, the company would guarantee a minimum lump sum at the point of retirement.

Royal Mail concluded: “We had detailed discussions with our unions about our future pension arrangements. They had to be sustainable, affordable and secure for members and the company. We agreed that CDC would be a progressive option which would meet our objectives. We see CDC as a better way of providing a regular wage in retirement for our people than is otherwise available through DC pensions, but without the increasingly unaffordable guarantees of defined benefit pensions for the employer.

“We want to be able to offer a CDC scheme to our 142,000 strong workforce as soon as possible.”

Since the closure of the Royal Mail Pension Plan to future accrual on 31 March 2018, transitional pension arrangements were put in place on 1 April until a CDC scheme is established.

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