The Royal Mail Collective Pension Plan

Royal Mail wrote to all impacted employees and consulted with the unions between September and November 2021 on the proposal to close the existing pension plans to new build up and open a new Royal Mail Collective Pension Plan (the Collective Plan). The information in the Collective Plan section of this website was created for the consultation period.

Since the consultation, Royal Mail and the unions considered all the feedback received and all agree that the Collective Plan is the right pension plan for our people. A decision leaflet was sent to all impacted employees in February 2022. This leaflet can be seen here.

As the leaflet explains, further information will follow closer to the launch of the Collective Plan.

The information on in this section of myroyalmail.com has been left up as it provides lots of detail on the Collective Plan, including the original consultation booklet which can be found here and FAQs that were added during consultation based on the questions people asked.

To recap on the journey so far, in 2018, Royal Mail and the Communication Workers Union (CWU) agreed that people working for Royal Mail Group Limited (including Parcelforce) should have a pension plan that gives them two things: a cash lump sum and a wage in retirement.

Together, we’ve designed a pension plan that would do this. We call it the Royal Mail Collective Pension Plan – or ‘the Collective Plan’, for short. It will be the first of its kind in the UK.

The animated video below explains the new plan in more detail.

RM Pensions
14 February 2022

When the Plan launches, people who have been with Royal Mail for more than one year will stop building up benefits in the Royal Mail Pension Plan (RMPP) and the Royal Mail Defined Contribution Plan (RMDCP) and start building them up in the Collective Plan instead. Benefits they have already built up in RMPP or RMDCP will be there for them when they retire.

The consultation booklet answered the 6 most important questions people had

  1. What would the Plan give me?
  2. How much would it cost me?
  3. When could I take my benefits?
  4. What would happen to benefits I’ve already built up?
  5. Who would join the Plan?
  6. Why change things?

This website is based on the booklet we sent to people in September 2021, but it gives you a bit more information and some frequently asked questions.  

This website explains the benefits that the Collective Plan intends to offer, but it does not give anyone a right to those benefits. The benefits that Royal Mail pension plans offer are subject to the rules of those plans and those rules can change. Royal Mail has the right to change, suspend or withdraw any part of its pension arrangements at any time.

‘Together we’ve designed a new pension plan that gives our people two things: a cash lump sum and a wage in retirement. The consultation on the pension changes is now complete and we’ve considered people’s feedback. We’re excited that this brings the Collective Pension Plan a step closer to launch.’

Mick Jeavons, Royal Mail Group Chief Financial Officer

Terry Pullinger, CWU Deputy General Secretary (Postal)

Gary Sassoon-Hales, Unite CMA National Representative

Please see below for the most common questions you are asking so far in the consultation:

Increases and decreases to incomes apply in the same way to all members whether they are building up benefits; they have left Royal Mail but not yet taken their benefits; or they are receiving their income in retirement. So, yes, incomes can fall during retirement.

Increases or decreases would happen once a year (it is expected that they will happen on 1 April) and the Trustees would write to you at least six weeks before this to let you know what the change will be.

Because increases are spread out over the future lifetime of the plan, even significant falls in the value of the investments wouldn’t necessarily mean that incomes will be reduced. For example, if the Plan could afford increases to incomes of 3% one year but the value of investments then fell by 20%, that might mean that a lower increase of 2% could be afforded the following year. But a decrease wouldn’t necessarily be needed. Please note that this example is illustrative in nature and has been simplified - actual Plan experience could differ.

In some circumstances, a decrease may be needed to balance the expected value of the benefits with the assets in the income section. If that happened, a decrease of up to 5% would be made on 1 April (with at least six weeks’ notice). If a decrease of more than 5% was needed, this would be spread over 2 or 3 years.

It is simplest to consider these questions separately for the income and lump sum sections.

Income section

The increases/decreases awarded in the income section depend on the performance of the assets in that section and on other factors such as how long members live. Royal Mail pays fixed contributions to this section, therefore the increases or decreases are not dependent on the performance of Royal Mail.

If Royal Mail could no longer support the Plan, it would have to close to the build-up of new benefits. However, the modelling that our advisors have done indicates that, even in this scenario, the benefits built up already would not be expected to be significantly impacted and increases/decreases would continue to be applied in the same way.

The Trustee of the Plan is likely to consider winding up the Plan once the number of members reduced over time.

Lump sum section

Similarly to the income section, the increases awarded in the lump sum section depend on the performance of the assets in that section. The main difference is that any lump sums built up and increases awarded already are guaranteed by Royal Mail. The Plan has been designed so that it is unlikely that the assets would not be enough to meet this minimum lump sum but, if this happened, Royal Mail would pay in additional contributions.

If Royal Mail was unable to make these contributions, the Plan qualifies to enter the Pension Protection Fund (PPF). If this happened, the PPF would pay members their lump sum. However, this might mean that members who had not reached Normal Pension Age would get a smaller lump sum than they have built up. The smallest amount they could get is 90% of what they have built up.

The Trustees of the Collective Pension Plan will be responsible for the Plan’s investments. They have not yet been appointed so it is too soon to provide detailed answers on investments. However, the income section of the Plan will be subject to the “charge cap” which limits the total amount of investment manager fees and other expenses so it will be a key priority of the Trustees to ensure members are getting value for money from the investment managers (and other suppliers). And certainly, for a Plan of this size, future time horizon and high-profile nature, we would envisage the future Trustees will be highly likely to embed ESG into their investment strategy.

During the negotiations in 2018, one of the key ambitions of the CWU and Royal Mail was to have one plan for all our people. The Collective Plan achieves this - Royal Mail would pay the same contributions into the same plan for everyone with at least a year’s service. We believe this is fairer. The RMDCP and the Royal Mail Pension Plan (RMPP) would therefore close.

During the negotiations in 2018, one of the key ambitions of the CWU and Royal Mail was to have one plan for all our people. The Collective Plan achieves this - Royal Mail will pay the same contributions into the same plan for everyone which we believe is fairer. A transition period would be impractical as it would be costly to maintain and, as many people do not take their benefits at their Normal Retirement Age, it would not work for everyone. It has therefore been decided that there would not be transition arrangements for people nearing retirement.

It is worth noting that members who retire after only a short period in the Collective Plan may have options other than taking a small income for life. It would be possible to transfer the benefits into another arrangement. Or, if the total value of benefits in the Collective Plan are small enough, it is likely that they could be taken as a cash lump sum. The first 25% would be tax free, the remainder would be taxed.

No – the introduction of the Collective Plan would not affect your options for how and when you take your benefits in RMPP or RMDCP. More detail is provided on page 12 of the booklet you were sent in the post.

The decision as to whether transfer values would be accepted by the new Collective plan is the responsibility of the Trustees of the Collective Plan, who have not yet been appointed. So it is too soon to say whether transfers into the Plan would be allowed. More detail would be provided in communications in the run up to the launch of the Plan.

Around three months before the launch of the Collective Plan, further communications would be sent to employees to explain how they can join the Plan if they are not eligible to be automatically enrolled into it (you can find out if you will join automatically on page 13 of the booklet you were sent in the post).

Of course, you can also choose to join the RMDCP any time before then. If you wish to do so, you need to complete a "Choices form" which can be obtained from the Scottish Widows Royal Mail Service Team at:

•            Telephone: 0800 092 8263; or

•            E-mail: royalmailserviceteam@scottishwidows.co.uk

If you are currently making Additional Voluntary Contributions (AVCs) into RMPP or RMDCP, these would automatically stop when the Collective Plan launches. They would remain invested as they are now until you take your benefits or choose to transfer them out.

You would be written to around three months before the new Collective plan starts to give you further information on the new AVC arrangements and how you can make AVCs into the Collective Plan. You would have two options – the Lump Sum Booster and defined contribution AVCs.

More detail about AVCs can be found on pages 11 and 12 of the booklet you received in the post.

When you retire early, your income is reduced to reflect the fact that is will be paid for longer. And your lump sum is reduced to reflect the fact that it will not remain invested for as long. The early retirement factors used to work out the reductions in the Collective Plan would be produced by the future Plan Actuary and would be calculated on a “central basis” which means the total value of your benefits is expected to be the same whether you retire at your Normal Retirement Age or early.

 

No – Normal Retirement Ages in RMPP and RMDCP are not changing. More detail can be found on page 11 of the booklet you received in the post.

What happens next?

Some further changes to the law are needed to make the Collective Plan possible. We are working with the government on this and, once we are satisfied that everything is in place, the Plan can apply to The Pensions Regulator for authorisation.

We hope to launch the Plan by the end of this year or early next year. We’ll let you know when we have a launch date or if anything changes.

You’ll continue to get information from any pension plan that you’re in now.

 

How to ask a question about the Collective Plan

Please email consultationquestions@royalmail.com

We will reply to you directly if we can. If lots of people ask the same question, we’ll add the answer to this website too.