Royal Mail
Royal Mail said it was left with no choice but to close the scheme. iStock

Royal Mail has received strong criticism from the Communication Workers' Union (CWU), after confirming its defined benefits pension scheme will be closed next year.

The postal operator, which was privatised in 2012, contributes approximately £400m a year to its pension scheme, which has 90,000 members, but warned it would have to increase its contribution to over £1bn by next year.

As a result, the FTSE 100-listed group said it had no alternatives but to close the plan, even though the pension scheme is currently in surplus.

"We have concluded that there is no affordable solution to keeping the plan open in its current form," the company said in a statement on Thursday (13 April).

"Therefore, the company has come to the decision that the plan will close to future accrual on 31 March 2018, subject to trustee approval."

However, the CWU criticised Royal Mail's decision, claiming its members, which include sorting and delivery staff, could lose up to a third of their future pensions.

"The CWU has made clear that any attempt by the company to impose change without agreement will be met with the strongest possible opposition including a ballot for industrial action," said Ray Ellis, CWU's acting deputy general secretary.

"We will not stand by and watch the company abandon the pension promises it made at the time of privatisation which threatens our members with massive cuts to their future pension benefits and insecurity and poverty in retirement."

According to the union, a 50-year-old employee on a £25,000 annual salary retiring at 65 would lose £4,392 a year, amounting to £109,800 over 25 years.

Royal Mail has outlined plans to change the scheme to a defined contribution scheme, which would see the company and its employees contribute to a pension fund, albeit with no guarantee of eventual income levels.

However, the CWU has put forward an alternative proposal for a defined benefit Wage in Retirement Scheme (WINRS) which, it said, will provide the company with "a credible, cost efficient and lasting pension solution for all its employees".

"Instead of provoking a dispute by acting without agreement and closing the scheme without consent, we urge Royal Mail to withdraw its plans and enter into serious talks with the CWU to introduce our new WINRS scheme to guarantee all its employees a decent wage and security in retirement," Ellis added.

A spokesperson for Royal Mail said: "We know how important pension benefits are to our colleagues. We continue to work closely with our unions on a sustainable and affordable solution for the provision of future pension benefits."

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said Royal Mail's plans to introduce a new scheme could backfire.

"With a highly unionised workforce, which has in the past shown itself willing to flex its muscle in defence members' rights, introducing an alternative plan is likely to prove costly," he added.

"Whether those costs will be in the form of chunky employer contributions to a new defined contribution scheme or lost revenue from industrial action remains to be seen."