New fair and consistent pension scheme for Royal Mail

04 July 2019

In his foreword for the Delivering Collective, Defined Contribution and Pension Schemes consultation published in March 2019, Pensions Minister Guy Opperman MP stated that “The UK has a world-class occupational pension system. But there is always opportunity for further innovation and improvement.”

The Royal Mail has taken the Minister at his word with its innovative proposals for a collective defined contributions (CDC) pension scheme which it claims will be fairer for all its employees.  Though the scheme is not yet in force, enabling legislation is now expected in the Autumn.    

Royal Mail’s scheme will be defined contribution (DC) in style but its investments will be pooled and members’ retirement income will be paid directly out of the fund.  It will target a similar level of benefits as currently provided by the organisation’s defined benefit (DB) scheme, with contribution rates of 6% employee and 13.6% employer for all members. Although benefits will be targets rather than being guaranteed, a guaranteed cash lump sum element is built up every year.

It is expected that benefits under this CDC scheme will be more achievable because there is no need to switch to lower-return investments as the member approaches retirement.  Instead benefits are paid directly out of the fund which will be focused on the consumer prices index plus 2%.