Britain’s Royal Mail said on Friday it was looking at ways to replace the defined benefit pension scheme it plans to scrap at the end of March 2018, after a backlash from unions over the closure of the older scheme.
Royal Mail, the British postal service privatised in 2013, said it was one of only a few major companies that still has employees in a defined benefit scheme, a type of pension that pays out according to employees’ final salary and length of service.
The Communications Workers Union (CWU) opposes Royal Mail’s move to close the defined benefit plan and says it would result in employees in the plan losing on average up to a third of their future pensions.
Around 90,000 Royal Mail workers are in the defined benefit scheme, whose closure to new members in 2008 resulted in about 40,000 workers joining a less generous defined contribution plan.
Royal Mail said on Friday that among its options for those leaving the older scheme it was considering a defined benefit cash balance scheme, where employees would receive a fixed sum at retirement plus payments based on the performance of a pension fund. Royal Mail said this built on a proposal put forward by the CWU.
“We believe that the defined benefit cash balance scheme would be a fair proposal that compares favourably with the retirement benefits offered in our industry and by other large UK employers,” the company said in a statement.
Royal Mail shares were down 2.8 percent at 407 pence by 1000 GMT on Friday.
The new scheme would be set up in a new section of its overall pension plan, with employees also having the option to join the defined contribution scheme, Royal Mail said.
Royal Mail said the cost of the new plan would be much lower than that required to maintain its current plan, which would have meant it more than doubling its annual contributions to over 1 billion pounds.
The company currently pays around 400 million pounds a year into the defined benefits scheme, and a spokesman said the cost of the new proposed scheme would be similar.
The company is continuing to hold talks with the CWU as well as unions Unite/CMA over its pension plan, it added.
British companies are facing increasing costs to fund pensions as people live longer and investment returns on bonds have fallen and are expected to remain low.
(Reporting by Esha Vaish in Bengaluru; Editing by Hugh Lawson)