Daily Management Review

British Royal Mail may face strikes in protest over closed pension scheme


04/13/2017


Royal Mail Plc said it would abandon the existing pension scheme, fearing that annual contributions will soon exceed 1 billion pounds sterling. This decision caused fierce criticism and a threat of strikes by the unions, reports Bloomberg.



Ross Holdway
Ross Holdway
Meanwhile, the shares of the 500-year-old company grew on reports of a rejection of the pension scheme. 

"There is no acceptable solution to keep the plan in its present form", the London company said in a statement. It is noted that Royal Mail intends to close this scheme for future deductions in March 2018.

At present, the plan brings benefits, but this will change by next year. "If there is no change, contributions can increase more than twice and exceed 1 billion pounds ($ 1.25 billion) in 2018", the company said.

Earlier, other British companies, including retailer Tesco plc, completed the defined benefit program, in which pensioners are paid fixed amounts based on a number of factors, such as length of service. 

The Communication Workers Union "strongly condemned" Royal Mail's plans, saying that employees will face loss to one-third of their future pensions if the defined-benefit scheme is no longer used.

Any attempt by the company to make changes without the trade unions’ consent will meet a "strongest resistance", including strikes, the union said in a statement. 

"We will not stand by and watch the company abandon the pension promises it made at the time of privatization", said Ray Ellis, Acting Under Secretary General of the Communication Workers Union of the United Kingdom. 

The British government completed privatization of Royal Mail in October 2015, two years after the company’s IPO on the London Stock Exchange. It was believed that the shares were initially undervalued during the initial placement, as the prices for securities soared during the following months.

Meanwhile, Royal Mail shares rose 0.6% at 11:30 am on the declining UK stock market. Goldman Sachs said about the positive effect of the current pension scheme’s waiver.

"If all participants in the defined-benefit pension scheme are transferred to a functioning defined contribution scheme, the positive impact on earnings before interest and taxes can amount to about £ 250 million," said analyst Matija Gergolet.

source: bloomberg.com






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