1. Hilary Salt FIA 5 February 2018
Royal Mail Pensions
Hilary Salt FIA
5 February 2018

2. Background
CWU proposed setting up a WinRS arrangement – a db scheme with pension made up of a guaranteed element and discretionary increases
RM were adamant they could not support this as the scheme would cause them significant accounting problems
After long and tough negotiations, the agreement reached combines two elements of benefit:
A target pension of 1/80th of pay with target RPI increases: there are no guarantees on this part of the benefit, and
A lump sum on retirement on 3/80th of pay – this is guaranteed – with target RPI increases
So compromises were – a non guaranteed pension but a guaranteed lump sum and, to divide these, a move from our 1/60th pension (Section C like) to a 1/80th pension and 3/80th lump sum (Section A and B like)
Interim solution whilst we get the legislation

3. Agreement: 2 new benefits
Common features
Eligibility
All employees with 12 months service, auto-enrolled
Member contributions 6%
Employer contributions
Fixed at 13.6%
Normal Retirement Age 67
Protections
Lump sum death benefit
4 x pensionable pay
Ill health benefit
50% of pensionable pay less State benefits for up to 3 years, lump sum at end of 3 years

4. Agreement: The pension benefit
Target benefit features
Scheme type
Target Career Average (Collective defined contribution)
Target pension accrual rate
1/80 of basic + allowances
Partner pension
50% of member’s pension
Normal Retirement Age 67
Target revaluation before retirement
RPI
Target increases in retirement

5. Agreement: The cash benefit
Target benefit features
Scheme type
Cash balance (Defined benefit + target increases)
Guaranteed cash accrual rate
3/80 of basic + allowances
Normal Retirement Age 67
Target increases before retirement
RPI
Optional contributions
1% from member + 1% from RM
It is hoped to be agreed with the Cabinet Office that the cash sum can be put towards the cash allowance in the RMSPP. This means there is less need to exchange RMSPP pension for cash, keeping more RMSPP pension.

6. Why is it good? Schemes will be open to all employees after 12 months
Good for RMPP members, good for RMDCP members
Much better contributions than RMDCP
More reliable (but still uncertain) benefit outcomes than from RMDCP
Extra 1% + 1% contributions to cash sum make up cost difference between NRA 65 and 67
Pensionable pay of basic + pensionable allowances: no Section C style offset

7. Why is it good?
Open collective solution has investment advantages over RMDCP
Target benefits creates investment flexibility which RMPP does not have
Royal Mail takes sponsorship risk on the cash balance scheme
Collective DC would be new to the UK, an industry leading solution

8. Will it work?
Tested how the scheme would perform if it had been set up 20 years ago
Assumes the scheme is invested 50% in UK equities and 50% in overseas equities
The chart compares the annual increases awarded with the target increase of RPI