Royal Mail’s new CDC plan delivered a above inflation pension increase of 6.4 per cent (CPI + 2.6 percentage points) for over 100,000 postal workers in its first year.
Pension consultants say this is a good result for the scheme which has set out to deliver real-term pension increases for members.
These increases come on the back of strong market returns particularly in growth assets. Royal Mail is the first employer to offer a CDC scheme, which wraps around both the accumulation and decumulation stage.
CDC schemes do not offer a guaranteed salary-related income in retirement like a DB scheme, but by pooling risk, particularly in relation to mortality, they aim to deliver higher returns for members than DC scheme. CDC also offer a more simplified approach for members when it comes to to turning accumulated savings into a regular income at retirement, however they involve more complex actuarial assumptions for scheme managers.
The Pensions Schemes Bill is pacing the way for multi-employer CDC schemes with the government consulting on the introduction of retirement-only CDC options.
LCP partner Helen Draper says: “For the scheme’s members and their representative union, this is a great result and shows members have really benefitted from the innovative new scheme design and strong investment returns delivered during the year.”
LCP partner Steven Taylor adds: “Other large organisations have been closely monitoring Royal Mail’s early years’ experience with CDC. We expect these results will now encourage others to progress their CDC plans over the upcoming period.”
