ROYAL MAIL: PENSIONS WORKING GROUP AND PENSION SCHEME BILL
Branches are advised that a meeting of the Pensions Working Group recently took place to discuss all matters relating to pensions and recent developments including the passage through parliament of the Pension Schemes Bill. This legislation includes the concept for enabling the introduction of Collective Defined Contribution (CDC) pension schemes. In this regard, the second reading of the Bill went through the House of Lords on 28thJanuary with full support from all parties.
It is clear there is a political consensus around this proposed legislation and that Royal Assent will be given later this year, thus making the ability to introduce CDCs a legal reality. It is also fair to say that the CBI has been supportive of CDCs and responded positively to the government consultation on this matter.
In moving the Pension Scheme Bill in the House of Lords, Baroness Stedman-Scott, the Parliamentary Undersecretary for Work and Pensions said “In developing these measures, I welcome the cross-party and external stakeholder support for the methodology and legislative approach that the Government have used”. Baroness Stedman-Scott went on to say “It is right for us to support employers and unions working together to bring about such a positive outcome”. The last sentence quoted was in reference to the collaborative working between Royal Mail and CWU who have been at the forefront in engagement to develop a CDC pension scheme.
Lord Hain and Baroness Drake spoke in the debate and in particular Lord Hain referred to the Union in his speech as follows: “I commend Royal Mail and the CWU for their efforts in working closely together to pursue this new ‘third way’ pension scheme, which, as CWU national officer Terry Pullinger said at the time of the agreement, would ‘secure our members’ future employment, standard of living and retirement security’.”
We also wish to highlight the Pension and Lifetime Savings Association press release on the Bill’s introduction last October which said that CDC schemes “offer employers increased flexibility and choice in how they structure schemes to benefit savers.” This statement was also quoted by Baroness Stedman-Scott in her speech when moving the second reading of the Bill.
A new and welcomed part of this Bill is the extension to include Northern Ireland within its provision (originally N.I. was excluded as a devolved matter). Clearly this is a positive development for our members in Northern Ireland.
A link to DWP’s Explanatory Notes to the Pension Schemes Bill is as follows:
The Pension Schemes Bill is now at the Committee stage (three dates are currently scheduled – 24th & 26th February and 2nd March, although a fourth date may be added) which is followed by a report prior to a third reading in the House of Lords. After this, the Bill will progress through the House of Commons before attaining Royal Assent which we expect to be after the summer recess.
Meeting with RMPP Trustee
Branches are also advised that our Pensions Working Group met with the RMPP Trustee on 16thJanuary who presented on the current position in regard to both the Royal Mail Pension Plan (RMPP) and the Royal Mail Defined Contribution Plan (RMDCP). It should be noted that the RMPP asset value has grown in the last year and there is a small surplus which is a steady state position from the previous year.
Employee and Employer Contribution Rates – RMDCP
A key part of the Trustee presentation related to the contribution rates and the numbers of RMDCP members paying into the different tiers. This can be found below:TierEmployee ContributionEmployer ContributionTotalDistribution of Scheme MembersNursery5%3%8%13% (c.7k members)14%8%12%2% (c.1k members)25%9%14%2% (c.1k members)36%10%16%83%*
* These scheme members are either already on Standard Tier 3 or will be moved to that Tier when they complete 12 months service.
We are obviously pleased that 83% of scheme members are at Tier 3 with a 16% contribution going in to the pension scheme (6% employee, 10% employer). However, we are concerned that nearly 7,000 scheme members are currently marooned in the Nursery Tier (an element of this does include new entrants who will automatically migrate to Level 3 after completing a year’s service).
However, a significant proportion of the 7,000 members have been in the Nursery Tier for a number of years and this only attracts a total of 8% into the scheme (5% employee, 3% employer).
The Pension Trustee is similarly concerned with this number and consequently, in January, the RMDCP issued a letter to these scheme members entitled “GRAB YOURSELF AN EXTRA £1,300 A YEAR” together with an associated Choices form for new options to be made to facilitate moving out of the Nursery and on to the main contribution Tiers. These documents are attached to this LTB and Branches are encouraged to make use of this information when engaging with members that are still in the Nursery Tier.
In simple terms, the key message to get across to the members on the Nursery Tier is that by paying an extra 1% contribution they can actually receive an extra 7% from Royal Mail, making 8% in total which in effect doubles the total contribution into their scheme to 16%.
Whilst we must not provide pension advice, we can clearly point out to the members concerned that they stand to gain an extra 7% from Royal Mail if they agree to pay an extra 1% themselves. The economics and benefits of doing this are clear. Indeed, the letter from the RMDCP supports this position with the following comment
“You may have wondered whether this was too good to be true – but it’s not. So, the Trustees of the Plan are keen to draw your attention to the extra money that would be paid into your pension pot if you select one of the Plan’s other contribution tiers”.
Obviously our aspiration is to encourage our members to avail themselves of a better pension and in doing so drastically reduce the number of scheme members in the Nursery Tier.
Additionally, eligibility for members to enter the Cash Balance scheme: Branches are reminded that members who have completed 5 years’ Royal Mail service (1 year in the nursery scheme and 4 years’ contribution to the Defined Contribution plan) are eligible to enter the Cash Balance scheme, which is clearly advantageous and should be brought to the attention of members so they are able to maximise their pension.
The Pensions Working Group is due to meet again in May. Further developments in relation to the Pension Schemes Bill will be reported as appropriate. If Branches and members wish to know more about their RMDCP pension, they can visit the RMDCP website by using the following link: https://rmdcp.uk/
Any enquiries in relation to the content of this LTB should be addressed to the DGS(P) Department or Andy Furey, Assistant Secretary.
Terry Pullinger Andy Furey
Deputy General Secretary (Postal) Assistant Secretary