The Communication Workers’ Union (CWU) has put forward a risk-sharing pension proposal to Royal Mail, which is seeking to close its defined benefit (DB) pension scheme.

The company, which is reponsible for the UK’s postal service, wants to mitigate an expected increase in the costs of the DB scheme, and has proposed a defined contribution (DC) replacement.

However, Terry Pullinger, deputy general secretary for postal at the CWU, which represents Royal Mail employees, criticised DC provision in the UK. He told IPE that the union’s proposal would help protect a “core” of the DB element while giving the company certainty over future contributions.

Under the proposal, a new scheme would be introduced with a guaranteed payout, but any indexation would be linked to investment performance. Pullinger said the investment portfolio would be “aggressive” and equity-based, in contrast to the majority of UK DB schemes, which tend to be predominantly invested in fixed income.

In other news, the aggregate liabilities of UK DB pension schemes increased by more than 5% during February, according to the Pension Protection Fund (PPF).

The move was largely driven by a 20% fall in UK gilt yields: during February the yield on a 10-year government bond fell from 1.449% to 1.151%.

This pushed the collective shortfall up by nearly a quarter (23%) to £242bn (€276bn). The combined funding ratio of the PPF’s 7800 index of private sector DB schemes worsened to 86.2%.

Andy Tunningley, head of UK strategic clients at BlackRock, said the government bond yield shift “may be a wake-up call to some pension schemes that are counting on rising yields to alleviate their funding woes”.

Index-linked bond supply is likely to reduce in the next few years, he added, given that the government is aiming to borrow less.

Tunningley said: “As the UK prepares to trigger formal notice of leaving the European Union, government bond yields – and hence pension fund liability values – are likely to be ever more difficult to predict. In the uncertain environment that Britain is likely to face in the coming years, we believe that many pension funds – particularly those with sponsors who could do badly from Brexit-led uncertainty – should look to mitigate interest rate and inflation risk. Many pension funds should hedge more interest rate and inflation risk than they currently do.”

Elsewhere, Pension Insurance Corporation (PIC) has continued its busy start to the year with a £33m buyout of the Alps Electric (UK) Limited Pension Scheme. The scheme is for UK workers of Japanese company Alps Electric, an electrical components manufacturer.

The scheme had entered into an agreement with the insurer to trigger the buyout “once certain conditions were met”, said Peter Woodland, chairman of the scheme’s trustee board.

“This allowed us to complete the transaction when a window of opportunity in markets opened,” he said.

Details have also emerged of another PIC buyout. Agreed in 2015 and completed last year, it is worth £180m and covers 1,200 members of the Blackwell’s Pension Scheme. The company runs a chain of bookshops, many of which are on university campuses.

Finally, the eight public pension funds in Wales that are forming one of the nascent local government pension scheme (LGPS) asset pools have launched the official tender for a third party operator to run an authorised contractual scheme and other UK collective investment vehicles.

Hymans Robertson is running the procurement search. The deadline is 14 April.

Interested parties have had plenty of notice about the search, with the Welsh pools having given an initial insight into their thinking about the mandate in a “prior information notice” announced in August, and an update on this in December.

The final contract notice was announced late last week. The Welsh pool has assets of more than £13bn.

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