Union rejects Royal Mail's proposed new pension arrangement

(Reuters) - The main trade union at Britain’s Royal Mail rejected a new pension arrangement on Friday, raising the possibility of a strike at the postal company, which was privatised four years ago.

A Royal Mail postal van is parked outside homes in Maybury near Woking in southern England March 25, 2014. REUTERS/Luke MacGregor

The Communications Workers Union (CWU) has opposed Royal Mail’s move to replace its defined benefit pension scheme, saying it would result in employees in the plan losing on average up to a third of their future pensions.

“It does not meet our aspiration of a wage in retirement pension scheme, but rather still promotes the conventional wisdom of a cash-out arrangement at the point of retirement,” CWU Deputy General Secretary of Postal Terry Pullinger said.

“It would still represent a significant shortfall in the pensions promise and it is not something that we are prepared to recommend to our members.”

Royal Mail, one of the few big UK companies to still have a defined benefit plan, wants to replace it with a modified defined benefit or contribution pension scheme. It says this would cost about 400 million pounds ($519 mln) annually, compared with more than 1 billion pounds for the original scheme.

Unite/CMA, which represent managers at Royal Mail, said it would seek its members’ views in a ballot.

“We have had many discussions with the company over the last few months and these have been difficult,” Unite officer Brian Scott said. “The Unite negotiating team consider that what is on offer is the best achievable in the circumstances.”

A Royal Mail spokesman said the company would continue to work with its unions.

Around 90,000 Royal Mail workers are in a defined benefit scheme, which pays out according to workers’ final salary and length of service. Its closure to new members in 2008 resulted in about 40,000 workers joining a less generous defined contribution plan.

Under the pension proposal on Friday, Royal Mail said postal employees would be offered a choice between a modified defined benefit or contribution pension scheme.

British companies are facing increasing costs to fund pensions as people live longer and investment returns on bonds have fallen and are expected to remain low.

Royal Mail's shares closed down 2.4 percent on Friday. The FTSE blue chip index .FTSE ended 0.5 percent lower.

($1 = 0.7704 pounds)

Reporting by Noor Zainab Hussain, additional reporting by Sanjeeban Sarkar in Bengaluru; editing by Jason Neely