Royal Mail CDC pensions ‘could outperform DB as well as DC’
Latest actuarial modelling suggests the new Royal Mail CDC/DB pensions scheme could provide returns some 70 per cent higher than current Defined Contribution schemes and CDC schemes could even outperform Defined Benefit, says our DGSP Terry Pullinger in his video update to members today.
Work done by Wills Towers Watson Actuaries suggests “that the CDC scheme, on average, would produce 70 per cent more for an individual than a DC scheme and 40 per cent more, currently, than a DB scheme,” Terry explains, adding: “Now that is massive news and will certainly shake up the pension world.”
Defined benefit pensions schemes are, he reminds us, still considered “the ‘gold standard with guaranteed outcomes,” but adds that Wills Towers Watson’s performance modelling, “which has gone on ever since we created this scheme, even through the Covid period” suggests that CDC schemes “would on average actually produce a better benefit.”
Today sees the Pension Schemes Bill return to the House of Commons for its Second Reading, after which it moves into its final Stages and, providing it progresses, will then receive Royal Assent and pass into law.
Opposition to the Bill is not expected, although MPs will, no doubt, be looking carefully at the legislation and ensuring that it meets all of the usual stringent tests for new legislation. If the progress of the Bill continues as currently scheduled – and it will become the Pension Schemes Act once it has received Her Majesty’s formal approval – Terry anticipates that the Royal Mail CDC Scheme would likely be introduced into the company “at some point next year” and “bring all our members into one ‘wage in retirement scheme.”
CWU members are warmly praised by our DGSP, who thanks them for the tremendous support” they gave to the union’s 2017 Four Pillars campaign, which was so powerful that it forced Royal Mail and the CWU into designing a new and unique on-going agreement on pensions that still offered a wage in retirement, and that led to this ground-breaking development.
Back in 2017, Royal Mail workers in the company’s DB scheme were faced with the prospect of being transferred into the DC scheme. DC schemes were once seen as the answer to reducing DB provision, but time had suggested that the outcomes for DC members would be insufficient to sustain dignity in retirement.
“So we were insistent that there must be another way,” explains Terry, “and we refused to accept that the only answer was a lump sum paid out when you retire, which wasn’t producing the best results and was insufficient to sustain people through their old age.” Eventually, as a key aspect of the Four Pillars agreement, both the CWU and the business agreed to find a better solution, he continues: “We both got on the same page to develop the art of the possible.
“How to create such a pension scheme.”
With help and expert assistance from First Actuarial, who have aways been a great support to the CWU, and other unions, as well as Wills Towers Watson and others who support Royal Mail, the principle of a CDC scheme – a collective, shared-risk scheme – was agreed and a specific, Royal Mail CDC scheme was designed – and robustly modelled.
The scheme would replicate the old DB scheme in design, producing a wage in retirement generated via CDC and a guaranteed lump sum.
Although CDC in different forms is used in other countries, such as Canada, Denmark and the Netherlands, no scheme of its type has previously existed in the UK and so legislation was required.
“I know that it’s through the collective strength of CWU members that we’ve managed to achieve that,” insists Terry, who makes the further point that, as well as being beneficial to Royal Mail workers, the precedent set could also be “a game changer for many working people.”
For workers in other companies, “this could make a massive difference to their lives and certainly to what their retirement might look like,” he suggests, adding: “Hopefully it will encourage other employers to move away from DC and into this type of scheme, CDC, so that people can get back to having a Wage in Retirement and dignity in retirement.”
The CWU does not support any sense that CDC should replace DB schemes and believes that DB schemes are the ‘gold standard’ and will remain so until time suggests otherwise.
However, for CWU members, the modelling is excellent news that supports our view that we have found a way to give our members a genuine pensions that produces a wage in retirement.
After describing the current situation as “a big moment, a massive moment,” Terry gave a “massive thank you to all of our members who backed this union unanimously,” and that this is clear evidence that we only get what we deserve if we negotiate from a position of strength.
“It’s been a long time waiting, but we’re getting closer and closer,” he added.