British Mail Workers Could Strike Over ‘Billion-Pound’ Pension Crisis

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  • Postal service to scrap ‘unaffordable’ pension scheme
  • Shares gain, but analysts warn of worker strike risks

Royal Mail Plc said it will scrap its existing pension scheme over fears annual contributions will soon exceed a billion pounds, drawing fierce criticism and threat of strike action from unions. Shares in the 500-year-old company rose as much as 2 percent.

“There is no affordable solution to keeping the plan open in its current form,” the London-based company said in a statement Thursday, adding that it intends to close the scheme to future accruals in March 2018.

Royal Mail said the plan is currently in surplus, but this would run out by next year. “If no changes are made, contributions could more than double to over 1 billion pounds ($1.25 billion) in 2018.”

The decision follows other British companies, including retailer Tesco plc, who have ended defined benefit schemes that pay retirees fixed amounts based on factors including length of service.

Strike Inevitable

The Communication Workers Union condemned Royal Mail’s decision, saying an average employee faces losing more than 100,000 pounds over their retirement, if the defined benefit scheme ends.

“I want to be absolutely clear that a strike is inevitable if no deal is reached,” CWU Acting Deputy General Secretary Ray Ellis said in a phone interview. “The ball is in their court.” Ellis added that Royal Mail’s response to date has been “quite negative.”

A Royal Mail spokesman said industrial action would undermine the trust between the company and its customers. “We could lose business as a result.”

CWU said in a statement earlier that it won’t allow the company to go back on pension “promises” made at the time of its privatization, which was completed in October 2015. The U.K. government’s initial stake sale two years earlier was criticized as having been under-priced, as the stock soared over the following months.

Shares Rise

Royal Mail shares were up 0.6 percent at 1:20 p.m. in a declining stock market Thursday, with Goldman Sachs viewing the scheme’s closure as a positive.

“Should all the defined benefit pension scheme members be switched to the current defined contribution scheme, it could represent a circa 250 million pound positive impact on cash earnings before interest and tax,” analyst Matija Gergolet wrote in a note to clients.

However, Jefferies analyst David Kerstens said by phone that the CWU talks posed considerable downside risk for the stock, with the union warning that new deals on pensions and pay could prove to be more expensive.