Members will be aware that Royal Mail Group Ltd has announced a 60-day formal consultation period on their proposed changes to your current Occupational Pension Plan. The business is required by Law to consult members of the Pension Plan before any changes can be made to current benefits.

This Members Bulletin is the first in a series that we will be publishing over the coming weeks. In these Members Bulletins we will seek to explain the background to this vitally important issue, and explain the impact of the businesses proposed changes. Suffice to say the Businesses proposed changes are all designed to worsen your Pension.

The main changes to the scheme that the business is consulting on are:

• Closing the pensions scheme to new members
• Increase the retirement age to 65 in 2010
• Pension accrued up to 1st April 2008 to be frozen thereafter increased annually by inflation as measured by the Retail Price Index (RPI) limited to a maximum of 5% annually
• Pension accrued after 1st April 2008 calculated on the basis on Career Average Revalued Earnings (CARE) Scheme indexed by inflation as measured by the Retail Price Index (RPI) limited to a maximum of 5% annually
• For new starters a Defined Contribution pension plan to be offered after 1 years’ service

Occupational Pension schemes are a complex subject. In this series of Members Bulletins we will explain a couple of the proposed changes in each issue.

In this Bulletin we will focus on:

The background to Royal Mail’s planned Pension Swindle
Their proposal to close the Pension Scheme to new members

Preparing the Swindle

The business has been planning this attack on your pension for some time.  The first ingredient to persuade you that there needs to be draconian changes to your pension, is to convince you that there is a pension crisis.

In preparing for this ‘crisis’ the business behaved in the following way:

Firstly, they took a 7 year pension contribution holiday. From 1995 to 2002 the business paid no pension contributions at all into the A & B Sections of the Pension Plan. The result a cool £1 Billion saving for the business.

Of course, the business will say “oh but the pension scheme was well funded when we took our holiday.”

That may be true but there were other options open to the business, such as:

• We could have all taken a pension contribution holiday, not just Royal Mail. For the 7 years they never paid a penny in to the A & B Scheme, we all paid our full contributions. No holiday for us.
• They could have put the £1 Billion they saved into an account where it could have been called upon when the scheme needed extra funding. Did they do this? Of course not!

Their solution is to now worsen our pensions. It is a perfectly legitimate argument that the business having taken their unilateral contribution holiday that they should make good the deficit in full without any adverse changes to your pension.

The second element of the business attempt to condition members that drastic changes to the pension plan are necessary was the deliberate overstating of the pension deficit.

In nearly all of the communications the business published on this issue, they declared the deficit that needed funding to be £6.6 Billion. They knew this figure was wrong, and was in fact almost twice what the actual deficit was, the true deficit funding figure being £3.4 Billion. Such was the misrepresentation by the business on this issue; the Pension Trustees had to write to all pension plan members to correct this misinformation. But if you are setting out to create the impression of a crisis then a £6.6 Billion deficit sounds much better.

Having attempted to condition us into believing that drastic change is necessary, let’s consider the first of their proposed changes.

Closing the Scheme to New Members

How much will closing the pension scheme to new members reduce the deficit by?

Answer: Not a single penny piece!

Closing the scheme to new members has no impact at all on the current deficit. The business wants to close the scheme to new members and offer an inferior Defined Benefit scheme to new entrants after 1 years’ service.
 
The reason for this is that this change places all of the risks associated with pensions onto individual members and provides no guarantees of any benefits.

If current members were hopeful that by the business closing the scheme would solve the problem, then think again. In many respects it may worsen the problem in the future, as there will be less members actively contributing money into the scheme. The truth is that the businesses proposal will create a two-tier workforce, where a growing number of employees will feel they are receiving second class treatment from the employer.

The history of our industry is that on every occasion the business has introduced inferior terms and conditions for future employees, we have always had to revisit this and re-negotiate these terms upwards.

There are ways to resolve the businesses concerns on pension issues, without the need to close the scheme to new members.

In our next Members Bulletin we will look at other elements of their proposal, including their planned swindle to your accrued benefits.