Unite, the union, is seeking a mandate for strike action from its members who work for the Post Office following proposals to close the defined benefit scheme to accrual.
Many DB schemes, including the UK's largest supermarket Tesco and drinks company AG Barr, have closed in recent years as low gilt yields and a volatile investment environment have made the management of them increasingly burdensome for employers.
The Post Office announced the plans to close the Post Office section of the Royal Mail Pension Plan as of March 2017 – the end of its financial year – last week.
Employers are going to have to start ensuring people have good pensions, otherwise it’ll be very difficult to get them to retire
Jonathan Reynolds, Capital Cranfield
Previously, the Post Office had intended to close the scheme at the end of August this year, but the closure was delayed following consultation with scheme members.
Brian Scott, an officer for Unite members at the Post Office, criticised the decision to close, saying it would reduce the amount of pension income that members will receive when they retire.
“We’re saying 30 per cent less pension than they would have got,” said Scott.
He claimed that the scheme is more than £100m in surplus, and said a valuation to determine the exact figure was delayed.
The Post Office did not comment on the valuation.
“The trustees say that while the [consultation] is going on they are unable to make any assumptions,” said Scott. “They knew that would be the situation, or if they didn’t they should have known.”
He added that the surplus arose in the scheme in part due to a cap on increases to pensionable pay at retail price inflation up to 5 per cent.
Scott claimed the Post Office wanted to use the surplus to buy out the scheme, but a spokesperson for the Post Office said this was just one of a number of options being considered.
The spokesperson said the Post Office arrived at the decision to close the scheme next year following a 117-day consultation period which began in February this year.
“This is a proposal from the leadership of the Post Office, and is about making sure that the DB plan remains fully funded on an appropriately low-risk basis,” the spokesperson said.
“Following the consultation, our recommendation was still to close the DB plan to future accrual and transfer members to the defined contribution scheme but to do that from the end of the financial year, rather than at the end of August 2016. The trustee would like time to deliberate before responding to our recommendation.”
Royal Mail closure plan flags pulldown effect of low rates
The perennial question of whether it is possible to keep DB schemes open to accrual has resurfaced after Royal Mail Group said it could not afford to keep its DB scheme open beyond 2018.
The trustee is now considering the recommendation to close, the spokesperson added.
Natasha Wilson, director of reward and pensions at the Post Office, said: “It is only right that the trustee give due consideration in reaching a decision, and we are fully supportive.”
‘Ray of light’
Jonathan Reynolds, client director at professional trustee company Capital Cranfield, said the process of winding up a DB scheme was the same across all scheme sizes and ultimately came down to the trustees.
“[The employer] will have to put together a compelling business case for the scheme to close,” he said. “Can they make a good business case and is it in the best interest of the current members?”
Despite a high number of DB closures in recent years, Reynolds said DB could make a comeback in some form in future.
“My ray of light is one day soon employers are going to have to start ensuring people have good pensions, otherwise it’ll be very difficult to get them to retire,” he said.
