Royal Mail Pension Plan – Changes

Category: Pensions

The Royal Mail Pension Plan is a ‘defined benefit’ (DB) pension scheme with around 90,000 members. It is a scheme that closed to new members in April 2008 – due to employer affordability – with any new employees, from April 2008 onwards, joining the Royal Mail defined contribution (DC) pension plan.

With no “guaranteed” pension income, in retirement, for DC scheme members, this type of scheme is less expensive (than a DB scheme) for an employer to run.


When assessing the Royal Mail (DB) pension plan in 2017, the actuaries calculated that – although the scheme was in surplus (a healthy position to be in) – the surplus would run out in 2018. Furthermore, it was estimated that the Royal Mail’s pension contributions, calculated at £400 million in 2017, would need to increase to £1 billion in 2018 to sustain the exact same benefits offered by the scheme.


In order for the Royal Mail to continue to afford providing pension benefits for its members, the Royal Mail confirmed that the DB plan would be closing for future accrual – with effect from 31st March 2018.

As an alternative, the Royal Mail proposed to offer existing members a choice between a DB cash balance arrangement and a DC scheme. The “new” DB and DC schemes would be set up as new sections of the existing pension plan, replacing the existing DB scheme (that is closing to future accrual). This proposal was initially met with opposition from the Communication Workers Union (CWU) – who represent the majority of the Royal Mail employees.


In December 2017, the CWU announced that they were discussing, with the Royal Mail, the creation of a collective defined contribution (CDC) scheme – as a possible resolution over the closure of the defined benefit (DB) scheme. A CDC scheme is a type of ‘Defined Ambition’ scheme (which provides income in retirement for individuals but differs from DC schemes as savings are held in a collective – rather than an individual – pot). However, whilst this type of pension scheme arrangement was introduced in the Pension Schemes Act 2015, it was not brought into effect through secondary legislation. This is something that would need to be pushed through legislation first.

Next Steps

If you are a current or deferred Royal Mail Pension Plan member and would like to know more about the options available or are concerned about the issues that you may face, please contact bdhSterling to speak to an adviser https://www.bdh-new.local/contact/