A UK workers’ trade union has hit out at a proposal from Royal Mail Group for a hybrid pension scheme to replace its existing defined benefit (DB) scheme, which is due to close next year.

Last month Royal Mail – which is responsible for the UK’s postal network and was privatised in 2014 – announced plans to close the £7.6bn (€9bn) scheme to future accrual from April 2018.

Royal Mail expects employer costs to more than double to £1bn a year from 2018 under the current system.

For its proposed replacement scheme, Royal Mail said in a statement released last week that it was “looking at options”, including a version of a previous proposal from the Communication Workers Union (CWU).

The union had proposed a hybrid, risk-sharing structure combining a guaranteed element with a bonus pool linked to investment performance, instead of indexation.

The CWU indicated that its proposed investment policy would be “aggressive” and heavily equity-based, in stark contrast to the Royal Mail’s current DB strategy. According to Royal Mail Pension Plan’s 2016 report and accounts, the group’s two main schemes had roughly 6.7% of their combined assets invested in listed equities at the end of March 2016.

Royal Mail’s new “cash balance” scheme contained elements of the CWU plan “without some of the inherent risks to the company that, in our view, the CWU scheme would have created”, the statement said.

“We very much appreciate the care that the CWU applied to its proposal and we have agreed to meet them to discuss it further,” Royal Mail said. “However, at the moment we do not believe the CWU proposal, in its current form, meets the fundamental principles underpinning our 2018 Pension Review. These are: sustainability, affordability, and security.”

A spokesperson for Royal Mail told IPE that the company felt the CWU’s equity-based strategy was “too risky”, and would cost “significantly more than we can afford”. In addition, Royal Mail had calculated that the scheme’s liabilities “could be larger than the value of the company” within six years, and could “continue to grow quickly”.

“Having reviewed matters with its actuarial advisers, the company believes that the risk to the company of [Royal Mail’s] proposed DB cash balance scheme would be materially lower than under the current plan,” Royal Mail’s statement said. “The company would also take steps to manage risk further through an appropriate investment strategy and a proportion of the company contributions would be held as a pension risk reserve for additional security.”

However, this morning the CWU attacked Royal Mail’s proposal as “intellectually boring, morally sickening, and an insult to its employees”.

Terry Pullinger, deputy general secretary for postal at the CWU, said: “It is an example of the closed-minded, idea-redundant mentality that the CWU are up against. It beggars belief that the company really do consider that this mutant defined contribution proposal is in any way an adequate response to the work and imagination that the union has put into our ‘Wage in Retirement Scheme’ proposal.”

He added that the union had been gathering “intellectual and moral support for our efforts”, and stated that the pension negotiations were “far from over”.

Unite, the UK’s largest union, is also involved in the ongoing negotiations. Its officer for the Royal Mail Brian Scott said the talks were “complex and difficult”, and warned that the unions had not ruled out industrial action if no solution was agreed.

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