Unions have threatened strike action after Royal Mail announced that its £7.4bn defined benefit pension scheme will close to future accrual in March 2018.
The postal operator said the member-wide consultation phase of its 2018 Pension Review, in respect of the future of its pension plan, ended on 10 March.
It has reviewed the consultation feedback received from members and its unions - the Communication Workers Union (CWU) and Unite/CMA – and said it employed the principles of sustainability, affordability and security while doing so.
“The plan is currently in surplus [£1.77bn on the IAS 19 accounting standard as of 31 March 2016] but we expect the surplus will run out in 2018,” said Royal Mail in a statement.
“The company’s annual pension contributions are currently around £400m. If no changes are made, the contributions could more than double to over £1bn in 2018.
“We have concluded that there is no affordable solution to keeping the plan open in its current form. Therefore, the company has come to the decision that the plan will close to future accrual on 31 March 2018, subject to trustee approval.”
The company added that it continues to work closely with its unions on a sustainable and affordable solution for the provision of future pension benefits and will write to pension plan members once further decisions have been made.
Unions immediately threatened strike action following the announcement.
Unite officer for the Royal Mail Brian Scott said: “This is a cause for serious concern for a hardworking and dedicated workforce.
“The announcement is to close the two current sections at the end of March 2018 and the important part will be the replacement scheme which we are in ongoing discussions about.
“The Royal Mail Pension Plan (RMPP) is not closing in its entirety as the replacement pension scheme will embrace part of that. It is very likely that it will still be a different form of the current defined benefit scheme.”
He added: “We will study the implications of today’s announcement very carefully and consider all the options going forward. If we don’t achieve a satisfactory outcome, we can't rule out an industrial action ballot on this issue.
“We will be consulting our members closely on the next steps in the coming days and weeks.”
The CWU said Royal Mail’s current plan to put all of its members into money purchase alternatives could see its employees lose up to a third of their future pensions on average.
CWU acting deputy general secretary (postal) Ray Ellis said: “Although Royal Mail’s own consultation exercise revealed massive opposition to its closure plan, the company has decided to ignore the views of its workforce and proceed with closure without consent.
“CWU has made clear that any attempt by the company to impose change without agreement will be met with the strongest possible opposition including a ballot for industrial action.
“We will not stand by and watch the company abandon the pension promises it made at the time of privatisation which threatens our members with massive cuts to their future pension benefits and insecurity and poverty in retirement”.
The CWU also put forward an alternative proposal for a defined benefit Wage in Retirement Scheme (WINRS), which it said would provide Royal Mail with “a credible, cost efficient and lasting pension solution for all its employees”.
Ellis said: “Instead of provoking a dispute by acting without agreement and closing the scheme without consent, we urge Royal Mail to withdraw its plans and enter into serious talks with the CWU to introduce our new WINRS scheme to guarantee all its employees a decent wage and security in retirement.”
The CWU last threatened strikes in 2013 during a long-running dispute over issues including pay, pensions and the impact of privatisation on job security and conditions.
That dispute was settled in early 2014 after the CWU supported Royal Mail’s agreement, which included a 9.06% pay increase over three years as well as legally binding protections for employees that it said at the time would be reviewed in 2019.