One pension scheme for our employees

In February 2018, Royal Mail and the Communication Workers Union (CWU) agreed that a Collective Defined Contribution (CDC) pension met our objectives of providing sustainable, affordable and secure future retirement arrangements for all employees. We committed to work together to call on Government to introduce the necessary legislation to enable the introduction of CDC pensions in the UK.

In March 2019 the Government committed to legislate to enable CDC pensions.



What is a CDC pension?

For CDC pensions, employer and member contributions into the pension scheme are pooled, and this collective pot is then invested. CDC pension plans pay members an income in retirement, rather than members having to buy an insurance product (known as an annuity) or investing their money in another way.

While there is an expected level of benefit that the employee will receive in retirement, this is not guaranteed. The actual benefit payable will depend on the scheme’s investment performance and other factors such as average life expectancy of members. In the anticipated Royal Mail CDC pension scheme, the same annual increase/decrease will apply to all members, whether they are still saving for retirement, have left the scheme or are in receipt of their pension payments.

CDC pensions have fixed contribution rates from the employer and members. In Royal Mail’s anticipated CDC pension, the company would contribute 13.6 per cent of salary, with members contributing six per cent.



We believe there are several advantages of CDC pension:

  • The pooled nature of the pension means it can take a less conservative investment strategy in members’ later years, allowing higher potential returns
  • Unlike Individual Defined Contribution (IDC) schemes, CDC pensions do not require members to purchase an annuity if they want to receive an income for life in retirement
  • CDC pensions can also be simpler for members, who are not faced with making decisions about investments or what to do with their benefits at retirement
  • The combination of these features makes for a more efficient design for members when compared with an IDC scheme, but with no benefit guarantees to be underwritten by the Company.



Progress on the campaign

Royal Mail and CWU were delighted that, in November 2018, the Government announced plans to legislate for CDC pensions, and launched a formal consultation. The response from Government in March 2019 was extremely positive, both about CDC pensions in general and our proposed scheme in particular. 

The consultation's publication is a major step forward in our campaign to allow us to offer a CDC pension for over 140,000 employees as soon as possible. Royal Mail and the CWU want to see CDC become a reality in the UK, and we hope the required legislation will be introduced at the earliest opportunity.

The Government consultation follows a report by the parliamentary Work and Pensions Select Committee in July 2018, which called on the Government to act quickly act quickly to legislate to allow CDC pensions.


Pensions Minister Guy Opperman MP launches the Government consultation on CDC pensions
 at Royal Mail's Mount Pleasant mail centre, November 2018



Our anticipated CDC pension scheme

Royal Mail and CWU’s joint objectives are to provide one pension scheme for all employees, which is simple for staff and provides a wage in retirement, while providing better expected outcomes than through a defined contribution annuity purchase. Our agreement with CWU on pensions combines two elements of benefit:

  • A Collective Defined Contribution (CDC) pension; and
  • A Defined Benefit lump sum on retirement

Two firms of actuaries have modelled the outcomes of our CDC pension scheme design independently, under a variety of different scenarios. They have come to broadly the same conclusions – that the scheme design which Royal Mail and the CWU have been working on would meet our shared objectives of providing sustainable and affordable future retirement arrangements for our colleagues. The modelling has also been reviewed by the CWU’s own advisers.

For more information on Royal Mail’s anticipated CDC pension scheme, please download the Anticipated Collective Defined Contribution pension design booklet. The final design will be subject to CDC legislation being enacted in appropriate form and to the rules of the arrangement once established.