In a UK first, the Royal Mail Collective Pension Plan is launching on Monday. It is the result of a collaboration between the employer, trade unions and government over several years.  

Every Royal Mail and Parcelforce worker with at least a year’s service has access to the scheme as of today, with the vast majority of staff being transferred automatically from a defined contribution scheme. The plan “will give members an income for life and a guaranteed lump sum on retirement”, according to Royal Mail.  

“Today heralds an exciting development for Royal Mail and for the pensions industry. We have worked hard with our unions, the government, the Pensions Regulator, and the trustee of the Collective Plan to make it possible, and we are delighted to have reached this point,” said Angela Gough, director of group pensions at Royal Mail.  

Nearly 1,000 employees who were not initially signed up have opted into the plan, a spokesperson for the Communication Workers Union told mallowstreet.

CWU deputy general secretary postal, Martin Walsh, said: “The Collective Plan has been a long time coming, and we are pleased our members will be able to take advantage of a pension for life and a guaranteed lump sum at retirement as these are important benefits for our members’ futures.”  
 
Gary Sassoon-Hales, who chairs the Unite CMA FTR committee, called Royal Mail’s CDC plan “pioneering”.

He added: “It exemplifies the power of collaboration between unions, Royal Mail, and other stakeholders, reflecting our commitment to safeguarding the financial wellbeing of our members while ensuring the long-term viability of the company.” 
 
The new scheme is chaired by Venetia Trayhurn from LawDeb Pension Trustees.

Trayhurn said: “With over 100,000 members at launch, the Collective Plan will immediately become one of the biggest single-employer, private-sector schemes in the UK.” 

Aside from LawDeb, the nine plan trustees include Independent Governance Group and representatives of the unions and the employer. 

Members build up an ‘income for life’ based on 1/80th of pensionable pay for every year they contributed, but the rate of income provided by the scheme is not guaranteed as it depends on investment performance and the actuary’s longevity assumptions. Pension reductions of more than 5% would be spread over two or three years, according to the scheme.   

The lump sum section provides a guaranteed sum worth 3/80th of pensionable pay for each contribution year. The normal retirement age is 67.  

Royal Mail contributes 13.3% of pay to the new scheme, 11.2% to the CDC scheme and 2.1% to the defined benefit lump sum. Members contribute 6% in total, 4% going to the CDC section and 2% to the lump sum section, with an option to boost the latter with another 1% matched contribution. 

Of the employer contributions, 0.2% will be taken to build a buffer for operational expenses and 0.1% will be used to build up a continuity reserve. In the lump sum section, 0.2% of pensionable pay will be taken from the employer contribution and allocated to a risk reserve.  

In the past, Royal Mail’s scheme design has been criticised as unfair to younger people. 

A spokesperson for the company said that there were “several mitigations against intergenerational unfairness” in the design, as “for the same salary and period of service, members will build up the same pension regardless of age” and that there would be no buffers to avoid the risk of having to reduce benefits, while the increase or reduction to benefits would be a uniform rate across all members.  

The launch of the scheme was welcomed by consulting firm Aon, which has been involved in bringing it about, having first conducted research into CDC in 2013.
  
Aon’s head of UK retirement policy Matthew Arends said: “The RMCPP scheme design that has been introduced today is a direct evolution of our earlier work and provides Royal Mail with certainty over their pension costs while delivering to over 100,000 workers what most of them want in retirement - an income for life that is expected to keep pace with the cost of living.”   

Chintan Gandhi, head of CDC at Aon’s UK partnership, called the scheme’s launch a “milestone” for pensions. 
  
“Using this as a stepping stone, we see tremendous value in the government moving on to the swift introduction of scalable whole-life multi-employer CDC schemes. We believe these have the significant potential to help over 30m workers in the UK build up a pension - including the self-employed.”  

The legislative framework for single employer CDC schemes was contained in the Pension Schemes Act 2021, but the government has been consulting on extending this to multi-employer schemes. It is expected that regulations will be proposed soon. 

The Association of Member Nominated Trustees is another advocate of CDC. Co-chair Maggie Rodger said the launch of Royal Mail's CDC scheme was the beginning of a wider rollout of CDC, and that it was expected to give a better return and a lifetime pension income to members. 

"We look forward to the enabling of multi-employer schemes which will be able to offer this opportunity to many more people," she added.

Others have also commented on Royal Mail becoming the first employer to set up a CDC scheme. Paul Waters, head of DC at consulting firm Hymans Robertson, welcomed it but said the Royal Mail’s scheme was designed around specific objectives. 

“The way it’s been set up will not be the best path for all schemes thinking about CDC. Other employers will have their own individual objectives and profile of members, which means a range of different types of design will be needed to cater appropriately for different groups,” Waters said.   

“As an industry we need to develop a broad range of DC risk-sharing options to deliver the greatest benefit to future members.” 
 

 

 

What are your thoughts – is CDC the future of pensions?