Royal Mail to abandon final salary pension for new staff

Leaders of 190,000 Royal Mail workers registered "shock and anger" yesterday over a decision by the state-owned company to close its final-salary pension scheme to new recruits to fill a massive £6.6bn black hole in its retirement fund.

The £1bn increase in the pension deficit means that Royal Mail arguably has the biggest pensions shortfall of any organisation in Britain.

The growing liability helped to cut the Mail's interim profits by 86 per cent in the first six months of the financial year. Returns fell to £22m between April and September last year compared with £159m in the same period a year earlier.

The Royal Mail sought to sweeten the pill by unveiling plans to give "phantom" shares to its workers, which it estimated would be worth £5,300 per employee over five years, depending on financial performance.

The Communication Workers' Union (CWU) said the pensions announcement was a "complete shock" and that the promise of shares for employees was "nothing but jam tomorrow". Employees' leaders believe the equity promise presages moves to privatise the corporation.

Ministers have tried to end final-salary schemes for new entrants in other parts of the public sector but have been forced to compromise.

Servicing costs for the Royal Mail pension scheme, with nearly 170,000 active members, 174,000 pensioners and 105,000 deferred members, increased by £280m to £730m in the past year.

The Royal Mail's chief executive, Adam Crozier, said it was important to safeguard the future of the fund. "The cost of servicing the pension fund clearly damages our competitiveness as we need to increase the price of our products and services to pay for it.

"Around 93 per cent of our mail volumes come from business customers, and they should not have to pay for the increased cost of our pensions - and if we ask them to do so, more of them will simply go to the competition."

He said that to ensure the problem did not get worse, the company would begin a six-month consultation exercise on replacing the final-salary pension scheme for new recruits with a defined contributions scheme. It would also try to work out the best way to safeguard an "affordable" final-salary arrangement for existing employees.

Under the terms of the suggested share scheme, which will be similar to one run by the John Lewis Partnership, about a fifth of the value of Royal Mail will be earmarked for workers and up to £1bn could be redistributed if modernisation targets are met.

The postal group published a five-year investment plan, agreed with the Government, to help it compete with its rivals and address "major funding challenges".

Ministers have agreed a £1.2bn debt facility, on commercial terms, to modernise the service, while a £1.7bn plan to restructure its network will go ahead as planned, including 2,500 post office closures.

A further £1bn will be invested in pensions, including £850m from company reserves.

Allan Leighton, Royal Mail's chairman, said management needed to transform the company's operations. "We will do so while also rewarding our people for their efforts and allowing them to share in our continued transformation."

Dave Ward, deputy general secretary of the CWU, said his organisation had not been made aware of the company's pensions plan. "The Government and Royal Mail have had a responsibility to discuss the future of the pension scheme with us and they have failed to do so.

"Ignoring the union on the crucial issue of the pension scheme is irresponsible and so is the plan to discriminate against future employees. We are both shocked and angry at how this announcement has been made."

The union said it had campaigned for more than two years to maintain public ownership of the Royal Mail, but voiced concern about the share scheme.

Paul Reuter, national officer at Amicus, said his union would "vigorously oppose" any suggestion that the share scheme might lead to privatisation.

PROMOTED VIDEO
Sport
Shinji Kagawa and Reece James celebrate after the latter scores in Manchester United's 7-0 victory over LA Galaxy
football
Voices
voicesGood for Lana Del Rey for helping kill that myth, writes Grace Dent
Sport
Farah returns to the track with something to prove
Commonwealth games
Life and Style
fashion Designs are part of feminist art project by a British student
Arts and Entertainment
The Tour de France peloton rides over a bridge on the Grinton Moor, Yorkshire, earlier this month
film
News
Very tasty: Vladimir Putin dining alone, perhaps sensibly
news
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
Top guns: Cole advised the makers of Second World War film Fury, starring Brad Pitt
filmLt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a uniform
Life and Style
Listen here: Apple EarPods offer an alternative
techAre custom, 3D printed earbuds the solution?
News
Snoop Dogg pictured at The Hollywood Reporter Nominees' Night in February, 2013
people... says Snoop Dogg
News
The University of California study monitored the reaction of 36 dogs
sciencePets' range of emotions revealed
Arts and Entertainment
A scene from Shakespeare in Love at the Noel Coward Theatre
theatreReview: Shakespeare in Love has moments of sheer stage poetry mixed with effervescent fun
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

IT Transition Manager - Stirling - Banking - £400

£400 - £420 per day: Orgtel: IT Transition Manager - Banking - Scotland - £400...

Test Lead - Financial Reporting - Banking - London

£350 - £400 per day: Orgtel: Test Lead, London, Banking, Financial Reporting, ...

Business Analyst, Retail Bank, £375-400p/d

£375 - £400 per day + competitive: Orgtel: My client, a leading bank, is curre...

PMO Analyst - London - Banking - £350 - £400

£350 - £400 per day: Orgtel: PMO Analyst - Banking - London - £350 -£400 per d...

Day In a Page

Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform
Climate change threatens to make the antarctic fur seal extinct

Take a good look while you can

How climate change could wipe out this seal
Should emergency hospital weddings be made easier for the terminally ill?

Farewell, my lovely

Should emergency hospital weddings be made easier?
Man Booker Prize 2014 longlist: Crowdfunded novel nominated for first time

Crowdfunded novel nominated for Booker Prize

Paul Kingsnorth's 'The Wake' is in contention for the prestigious award
Vladimir Putin employs a full-time food taster to ensure his meals aren't poisoned

Vladimir Putin employs a full-time food taster

John Walsh salutes those brave souls who have, throughout history, put their knives on the line
Tour de France effect brings Hollywood blockbusters to Yorkshire

Tour de France effect brings Hollywood blockbusters to Yorkshire

A $25m thriller starring Sam Worthington to be made in God's Own Country
Will The Minerva Project - the first 'elite' American university to be launched in a century - change the face of higher learning?

Will The Minerva Project change the face of higher learning?

The university has no lecture halls, no debating societies, no sports teams and no fraternities. Instead, the 33 students who have made the cut at Minerva, will travel the world and change the face of higher learning
The 10 best pedicure products

Feet treat: 10 best pedicure products

Bags packed and all prepped for holidays, but feet in a state? Get them flip-flop-ready with our pick of the items for a DIY treatment
Commonwealth Games 2014: Great Scots! Planes and pipers welcome in Glasgow's Games

Commonwealth Games 2014

Great Scots! Planes and pipers welcome in Glasgow's Games
Jack Pitt-Brooke: Manchester City and Patrick Vieira make the right stand on racism

Jack Pitt-Brooke

Manchester City and Patrick Vieira make the right stand on racism
How Terry Newton tragedy made iron men seek help to tackle their psychological demons

How Newton tragedy made iron men seek help to tackle their psychological demons

Over a hundred rugby league players have contacted clinic to deal with mental challenges of game