The UK’s 500-year-old postal service, Royal Mail, said it will close its defined benefit pension plan by the end of March 2018 due to diminishing funds.
“We have concluded that there is no affordable solution to keeping the plan open in its current form,” Royal Mail said in a statement. “Therefore, the company has come to the decision that the plan will close to future accrual on 31 March 2018, subject to trustee approval.”
The decision came after the closing of a consultation process that was launched in January.
The Royal Mail said that although the plan is currently in surplus, it expects those funds to dry up sometime next year. The company also said that its annual pension contributions, which are currently around £400 million ($503 million), will surge to more than £1 billion in 2018 if members continue to build up benefits on the current basis, and no changes are made. This significantly exceeds the £290 million the Royal Mail generates in cash every year.
The most recent financial review showed that the Royal Mail’s contribution rate would increase from around 17% of pensionable pay to over 50%.
Under the proposed changes, pension fund members will continue to build up benefits in the plan just as they do now until March 31, 2018. As of April 1, 2018, members would no longer build up future pension on a defined benefit basis, but on a defined contribution basis.
The Royal Mail also said the age at which members can take plan benefits would remain the same, and that active plan members would be given a one-time payment of £750, which they can either contribute to their defined contribution retirement account, or take as cash as of March 31, 2018.
“We believe our proposal would be a fair outcome; it is the best option available,” said Jon Millidge, human resources director for Royal Mail Group. “It is a very competitive pension package compared to the industry and other large employers. It is about continuing to provide sustainable, good-quality pension benefits and as many high- quality jobs as possible.”
UK trade unions are mulling over whether to strike over the pension closure, as was decided recently by UK-based BMW employees after the German automaker announced that it would be closing its pension fund as well.
“This is a cause for serious concern for a hardworking and dedicated workforce,” said Brian Scott, Unite’s officer for the Royal Mail, in a statement. “We will study the implications of today’s announcement very carefully and consider all the options going forward. If we don’t achieve a satisfactory outcome, we can’t rule out an industrial action ballot on this issue.”
Unite has approximately 6,000 members working for the Royal Mail.