A deal is close to being struck between the Communication Workers Union (CWU) and Royal Mail Group because of the latter’s plan to shut the defined benefit (DB) pension scheme, Maria Espadinha reports in
FTAdviser.
Plans to close the DB pension scheme were announced in 2017. It will be closed for future accruals in 2019. As a result, negotiations between the CWU and Royal Mail Group have been ongoing. They are close to securing an agreement on a collective defined contribution (CDC) plan for all members.
A CDC pension scheme aims to pay out a target amount to its members, achieved through long-term, mixed-risk investments. However, the target is not guaranteed. An individual’s investment pot is put in a collective pot from which a sum is withdrawn.
The CWU’s general secretary for postal, Terry Pullinger, is quoted as saying: “We are on the cusp of something very special” – the CDC scheme. However, timescales were not disclosed.
Another hurdle is that the proposal cannot be ratified without Government action. Pullinger explains: “The reason that hasn't been done thus far is because no one has pushed for it, but we are now. And it is crucial to resolving our dispute.”
Before the CDC scheme is confirmed there will be “a period of transition”.
While the CWU may see CDC schemes as a solution to this situation, Espadinha references “specialists” who say that CDC schemes are not a solution to DB pension funds that are underfunded or have high deficits.
FTAdviser article
CDC: an answer to the pension conundrum?In another
FTAdviser article by Espadinha, she writes that CDC could be a way of getting more self-employed workers to save for retirement.
The article quotes Con Keating, head of research at insurance group Brighton Rock Group. Keating says that one of the attractions of the CDC scheme is that it can be associated with other bodies, such as professional associations and affinity groups, instead of needing regular employer-sponsored contributions.
The Government will be legislating on self-employed workplace pensions before the end of parliament, or 2022. The Pensions Schemes Act 2015 defines CDC as a distinct pensions category, but the plans were “shelved indefinitely” to avoid distracting from auto-enrolment and pension freedoms. Keating says a clear sign from the Government is needed on this.
Kate Smith, head of pensions at Aegon, disagrees with Keating. The focus should be on increasing pension contributions for all. She is referenced as saying that the “root problem” is not enough money is being paid into current pension schemes. “This is something which needs to be resolved before it is too late.”
Mike Lacey, partner at Berkshire-based financial adviser firm Bowman Pension Consulting, is cited as saying that CDC schemes make sense. A DB plan, or final salary pension, is the “gold standard” – but the cost is prohibitive. CDC would help ease this worry.
“Not only would the balance sheet liability be removed – which will appeal to employers – but the employee will have an indication of an aspirational pension,” Lacey says. “This has to be a good thing.”
FTAdviser article
Royal Mail trailblazers?Henry Tapper, business development director at financial advice firm First Actuarial, discusses the wider ramifications of the CWU-Royal Mail Group deal in
Professional Adviser.
“What seemed an arbitrary choice, now looks timely,” Tapper says. Pension freedoms are now seen as a “greasier reality” than the Lamborghini-promised future of old. For baby boomers without DB schemes, could CDC be an alternative?
Tapper says that workers at the Royal Mail “clearly want their wage for life”, and the Department for Work and Pensions would have to be brave to deny them that chance via CDC. But, looking outside of these negotiations, will people want what Tapper calls “freedom from the freedoms”?
He believes that, sooner or later, the FCA and The Pensions Regulator will be in sync. “My prediction is that CDC will restore some kind of order to what has become at best a messy, at worst a greasy, pension landscape,” he concludes.
Tapper’s right: Royal Mail employees do deserve the right to choose their scheme. Pension freedoms changed the landscape, but that change was top-down. Could the next change in pensions be bottom-up?
Professional Adviser article
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