Post Office faces threat of strike action over pensions cut

Post Office workers are being balloted over strike action in response to proposals to close the organisation's final salary pension scheme.

Until now, the defined benefit fund, which has been off-limits to new employees since 2008, has allowed long-serving staff to make contributions and amass future payouts. Around half of the Post Office's 7,000 staff are members.

But under new plans put forward by bosses and being considered by trustees, these 3,500 savers will have their funds frozen and new contributions will go into a defined contribution scheme.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

Instead of being guaranteed a set income for life based on their final salary, staff will now pay into a savings pot whose final value will be determined by investment returns. Pension income will be affected by assumed life expectancy.

Unite and the Communication Workers Union estimate workers' payouts will fall by 30 per cent or even more in some cases, reports The Guardian.

Brian Scott, a Unite officer, said: "This is a sad day for Unite members in the Post Office who are being let down by senior executives that failed to secure the necessary funding to ensure a long-term future for the scheme."

Often referred to as money purchase schemes, defined contribution funds involve members buying units. The size of the final pot is determined by returns on the fund's investments and savings are ultimately used to buy a pension income based on factors such as life expectancy.

In contrast, defined benefit schemes, sometimes called gold-plated pensions, guarantee set income levels for life based on average or final salary.

There are very few such schemes still open to new members in the UK as the increase in life expectancy and the declining returns in the low interest rate of recent years have left many funds with a huge shortfall.

According to the Financial Times, the collective deficit for defined benefit schemes increased by £89bn to £384bn last month.

The Post Office's scheme is still in surplus to the tune of £100m, but the changes will enable the loss-making organisation to reduce its costs and remove a major balance-sheet liability. Trustees could still refuse to back the plans, however.

Andy Furey, a CWU official, said the surplus shows the scheme "is in rude health". He confirmed the union would ballot members for "strike action over this attack on their quality of life after retirement".