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Royal Mail’s new pension scheme, the first of its kind in the UK, fell nearly 5 per cent in its first six months, raising questions over future payout levels for its more than 100,000 members, including postal workers.
The Royal Mail Collective Pension Plan, a collective defined contribution (CDC) scheme launched in October last year after a six-year plan, fell 4.6 per cent in the year to the end of March, compared with a 3.6 per cent decline in its benchmark index, according to results seen by the Financial Times.
The results come as the government seeks to encourage wider adoption of such plans, which offer a halfway point between traditional defined-benefit pension plans that offer predictable payouts, and defined-contribution plans, where income is based on contributions and investment performance.
The Postal Group’s CDC was the first to be installed after planning permission was granted in 2021 and its performance will be closely monitored by other employers. The government hopes the pooled products will boost retirees’ incomes and divert savings into a wide range of assets.
But people familiar with Royal Mail’s CDC, which has 110,000 members, stressed it was too early to draw conclusions about payouts in the long term. He said the fund was just launched and flows and timing had a significant impact on returns.
A CDC spokesperson said it was “designed to hold long-term growth investments that allow for short-term volatility” and that it had delivered “positive” returns since the end of March.
The results showed that 77 per cent of the fund, which had assets of £192 million at the beginning of April, was invested in global equities that follow a benchmark designed for investors who want their portfolios to match the target of limiting global warming to 1.5C.
9 percent of the fund was in small-cap equities and another 9 percent in emerging market stocks. BlackRock, the outsourced chief investment officer for the plan, declined to comment.
CDC members participate in a pooled plan and are offered a target return around which they can plan their retirement. But returns are not assured and companies are not obliged to meet any funding shortfall.
John Ralph, an independent pensions consultant, said the “real issue” was a lack of clarity about how performance – above or below – translates to changes in the target pension. He said the Royal Mail CDC should be “fully transparent” about its calculations and the impact on different age groups.
Royal Mail plans to update scheme members on their target pensions and how they are calculated in the spring.
Pensions Minister Torsten Bell told the Financial Times in October that new rules allowing many private sector employers to join collective defined contribution schemes could boost retirement income by 25 to 60 percent.
While it is “too early to say” whether CDC products will become the main option in the UK’s £600bn workplace defined-contribution market, “we should be confident that it will play an important role in our future pension system”, Bell said.
Royal Mail’s parent company, International Distribution Services, was taken over last year by EP Group, headed by Czech billionaire Daniel Kratynsky, who has vowed to improve the postal service’s financial strength. The businessman is best known for his investments in UK supermarket chain J Sainsbury’s and football club West Ham United.
