Royal Mail : 2018 Pension Review Update

The member-wide consultation on the future of the Royal Mail Pension Plan (the Plan) ended on 10 March 2017. On 13 April 2017, Royal Mail confirmed that the current Plan, a career average Defined Benefit scheme, will close to future accrual on 31 March 2018, subject to Trustee approval.

We know how important pension benefits are to our colleagues. As part of our 2018 Pension Review we have been working with the CWU and Unite/CMA on a sustainable and affordable solution for some time.

Royal Mail is looking at options for the accrual of retirement benefits after 31 March 2018, including a Defined Benefit cash balance scheme that builds on a proposal put forward by the CWU. This addresses some of the employee feedback Royal Mail received during the member-wide consultation. The scheme would be set up in a new section of the Plan. Plan members would have the option of joining a Defined Contribution scheme as an alternative.

Member benefits built up until April 2012 are backed by Government. Benefits built up between 2012 and 2018 are backed by the Plan's assets. From 1 April 2018 the Defined Benefit cash balance scheme would provide members with a guaranteed lump sum at retirement. Members would be guaranteed to receive the total value of the contributions paid towards their lump sum up to retirement. In addition, discretionary increases would be applied up to retirement, subject to the investment performance of the scheme. Once applied, these increases would also be guaranteed.

Having reviewed matters with its actuarial advisers, the Company believes that the risk to the Company of the proposed Defined Benefit cash balance scheme would be materially lower than under the current Plan. 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.

The proposed Defined Benefit cash balance scheme includes elements of a CWU proposal, without some of the inherent risks to the Company that, in our view, the CWU scheme would have created. We very much appreciate the care that the CWU applied to its proposal and we have agreed to meet them to discuss it further. 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.

We believe that the Defined Benefit cash balance scheme would be a fair proposal that compares favourably with the retirement benefits offered in our industry and by other large UK employers. We will continue to discuss the future of the Plan with our unions CWU and Unite/CMA. We will write to Plan members once more decisions have been made.

The Company is also engaging in discussions with the CWU on issues including pay, the working week and the range of agreements under the Agenda for Growth.

ENDS

Media enquiries:

Peter Tilley
Phone: +44 (0)7841 803 316
Email: peter.tilley@royalmail.com

Rebecca Lum
Phone: +44 (0)7834 502 412
Email: rebecca.lum@royalmail.com

Royal Mail press office out of hours: 0203 338 1007

Notes:

1. The Plan is currently in surplus, but we expect the surplus will run out in 2018. The Company's annual pension contributions are currently around £400 million. If no changes are made, contributions would have to more than double to over £1 billion once the surplus runs out.

2. At around £400 million per year, Royal Mail currently makes one of the UK's largest ongoing pension contributions. Many companies have already closed their Defined Benefit pension schemes. Only a few FTSE 100 companies, like Royal Mail, have a significant number of their employees still building up benefits in a Defined Benefit pension scheme.

3. Plan members' benefits built up until April 2012 are backed by Government. Benefits built up between 2012 and 2018 are backed by the Plan's assets. Members can get these benefits when they come to take their pensions.

- Royal Mail Statutory Pension Scheme (backed by Government) - Defined Benefit (DB) benefits earned up until 31 March 2012. Increased in line with RPI (up to 5% a year) until a member takes them or leaves Royal Mail employment.
- Royal Mail Pension Plan (backed by the Plan's assets, and by Royal Mail) - Defined Benefit (DB) benefits earned between 1 April 2012 and 31 March 2018. Increased in line with RPI (up to 5% a year) until a member takes them or leaves Royal Mail employment.

4. The Company is committed to working hard to find a solution which enables it to continue providing sustainable, good quality retirement benefits, a healthy Company, and as many high quality jobs as possible.

About Royal Mail
Royal Mail plc is the parent company of Royal Mail Group Limited, the leading provider of postal and delivery services in the UK and the UK's designated universal postal service provider. UK Parcels, International and Letters ('UKPIL') comprises the company's UK and international parcels and letters delivery businesses operating under the 'Royal Mail' and 'Parcelforce Worldwide' brands. Through the Royal Mail Core Network, the company delivers a one-price-goes-anywhere service on a range of parcels and letters products. Royal Mail has the capability to deliver to more than 29 million addresses in the UK, six days a week (excluding UK public holidays). Parcelforce Worldwide operates a separate UK network which collects and delivers express parcels. Royal Mail also owns General Logistics Systems (GLS) which operates one of the largest ground-based, deferred parcel delivery networks in Europe.