Royal Mail Pension Plan Our pension proposal: the Company s Decision

Transcription

1 September 2013 Royal Mail Pension Plan Our pension proposal: the Company s Decision Dear colleague This update sets out Royal Mail s decision on the changes to the Royal Mail Pension Plan ( the Plan ) following the Consultation Period that closed on 25 August As we said in the Proposal booklet, changes have to be made to the Plan. That is because the cost of providing future pension benefits is expected to be significantly higher than before. Put simply, the additional cost of an extra 300 million each year is not sustainable. To protect our business, we must contain the cash cost of providing future pensions in order to avoid being forced to close the Plan. We have been discussing the need for changes to the Plan with our trade unions for some time and we launched the consultation with members to encourage everyone to have their say and give us their comments. The feedback gathered during the summer and constructive discussions with the unions has helped to shape the Company s decision. We have also made significant improvements to our original proposal. This update confirms the Company s final decision on the changes. Its implementation will now be progressed. The Company needs to take this action now in order to avoid the need to take more drastic action to close the Plan. However, discussions with the unions will continue on other pension matters such as pension governance and improvements to the Royal Mail Defined Contribution Plan.

2 The Company s Decision Your basic pensionable pay under the Plan (after the deduction of the LED for Section C members) would increase by RPI (up to 5%) each year regardless of what happens to actual pay rises, including new promotions. Members wanted to see new promotions, increments and progression reflected in their Your basic pensionable pay under the Plan (after the deduction of the LED for Section C members) would increase by the higher of RPI (up to 5%) each year, or any promotion or increment that is a greater amount within your current pay grade group as at 31 March 2014 see below. Promotions and Final Salary pensionable pay CWU grades no longer increase for promotions (or related increments) from 1 April Unite grades no longer increase for promotions (or related increments) and Members wanted to see new promotions and increments reflected in their and increments reflected in their CWU Grades The current pay grades of CWUrepresented Plan members will be combined into two groups for pension purposes. Group 1: Postal, Administration and Fleet Group 2: Engineering Promotions and subsequent increments while you stay within your pay grade group would continue to flow through into your Final Salary pensionable pay as they do now, until the end of the Company s next pension review on 31 March Unite Grades The collectively bargained pay grades of Unite-represented Plan members who are not in a broad-banded grade will be combined into two groups for pension purposes. Group 1: Up to ML3 or equivalent Group 2: EL1, EL2, PFW Operations Manager A or equivalent Promotions and subsequent increments while you stay within your pay grade group would continue to flow through into your Final Salary pensionable pay as they do now, until the end of the Company s next pension review on 31 March The collectively bargained Broad band grades will not be grouped but while you stay within your 31 March 2014 grade any progression payments up to the median would continue to flow through into your Final Salary pensionable pay, as they do now until

3 Promotions and Final Salary pensionable pay (cont) no longer increase for promotions or Broad band grades will not be grouped but while you stay within your 31 March 2014 grade any progression payments up to the median would continue to flow through into your Final Salary pensionable pay as they do now, until no longer increase for promotions or No change to the original proposal. Promotions and Career Salary Defined Benefit (CSDB) pensionable pay CWU grades increments. wanted to see all increments reflected in their CWU Grades Promotions and increments would continue to flow through into your CSDB pensionable pay as they do now, until the end of the Company s next pension Unite grades increments or progression. wanted to see all increments Unite Grades Promotional pay increases and subsequent increments in collectively bargained pay grades would continue to flow through into your CSDB pensionable pay as they do now, until Broad band grades in collectively bargained pay grades will not be grouped but promotional increases or progression payments up to the median would continue to flow through into your CSDB pensionable pay as they do now, until the end of the Company s next pension progression. wanted to see all progression reflected in their Broad band grades will not be grouped but promotional pay increases or progression payments up to the median would continue to flow through into your CSDB pensionable pay as they do now, until the end of the Company s next pension

4 Promotions and Career Salary Defined Benefit (CSDB) pensionable pay (cont) progression. wanted to see all progression reflected in their No change to the original proposal. Our commitment is that once this change has been implemented, the Plan will remain open to future accrual and we will not make any further changes to the rules of the Plan. This commitment will be binding on the Company (regardless of any future change of ownership), but will be subject to periodic review and certain conditions see below. No change to contribution rates, accrual rates or normal retirement age No change to contribution rates as a proportion of CSDB No change to accrual rates. No change to normal retirement age. No change to pensionable allowances or bonus. Some members asked if they could contribute more than 6% of CSDB pensionable pay to close the gap. The Company explained that not all members could afford to do this, and members contributions would have to increase threefold to meet the extra cost. Some members asked if alternatives were available like lowering accrual rates to close the gap. The Company explained that this would have too big an impact on members pensions and the saving would not be enough to meet the extra cost anyway. The ability to reduce accrual rates is limited by current legal requirements. Some members asked if they could work longer to close the gap. The Company explained that not all members would want to do this and the saving would not be enough to meet the extra cost anyway. Members were pleased that pensionable allowances and bonus were not going to change. No increase to members contribution rates, which will remain at 6% of CSDB pensionable pay, but based upon CSDB pensionable pay as amended by the changes set out above and in the Proposal booklet. No reduction to members accrual rates. No increase to members normal retirement age. No change to treatment of pensionable allowances or bonus. I recognise that these changes are significant. They have not been entered into lightly. We have carried out a thorough consultation process, including lengthy discussions with our trade unions.

5 The Company s commitment to keeping the Plan open without further rule changes will be periodically reviewed. The first periodic review will be completed by March However, there are certain conditions which, if not fulfilled, may trigger an earlier review. These conditions are: The Company contribution rate remaining at the current level and any actuarial valuation not requiring additional contributions of more than 50 million each year; The Company remaining a going concern; and No factors outside the Company s control causing a material adverse impact on the Plan or how the Plan must be recognised within the Company s financial statements. At any review, the Company would assess (along with expert advisors and the unions) the affordability of the Company s pension schemes and the Company s financial position. The scale of any problem would be identified and potential courses of action developed and discussed with all stakeholders before any action is taken. We believe these changes provide the best solution for our people and the Company. Kind regards Jon Millidge Company Secretary Important legal note: This document confers no right to benefits. Rights to benefits under any Royal Mail pension arrangement arise only under the governing documents of the arrangement as in force from time to time. A booklet describing the changes in more detail will be mailed to you in the next few weeks. Additionally, the Pension Consultation Helpline will continue to answer your questions: By [email protected] ( mypension in your Outlook address menu) By phone: or (Monday-Friday, 8.30am-5pm) By post: Freepost MY PENSION, Pond Street, SHEFFIELD S98 6HR