* Postal group to close pension scheme for 90,000 workers
* Says would need to increase contributions to 1 bln stg a
* Union could ballot for industrial action over move
(Adds union and analyst reaction, shares)
By Paul Sandle
LONDON, April 13 Britain's Royal Mail
will close its defined benefit pension scheme at the end of
March 2018 after a review found it would need to more than
double annual contributions to over 1 billion pounds ($1.3
billion) to keep the plan running.
Royal Mail, the British postal service privatised in 2013,
said it was one of only a few major companies that still had
employees in a defined benefit scheme, a type of pension that
pays out according to final salary and length of service.
Around 90,000 Royal Mail workers are in the plan, whose
closure to new members in 2008 resulted in about 40,000 workers
joining a less generous defined contribution plan.
The company, which pays around 400 million pounds a year
into the defined benefits scheme, said it was currently in
surplus, but it expected the surplus to run out in 2018.
"We have concluded that there is no affordable solution to
keeping the plan open in its current form," the company said.
It said it was working with its unions on a "sustainable and
affordable solution" for the provision of future pension
benefits. Entitlements built up until the scheme closes will be
The Communications Workers Union (CWU), however, condemned
the closure, saying it would result in employees on average
losing up to a third of their future pensions.
"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 strike action," said
Ray Ellis, the union's acting deputy general secretary.
British companies are facing increasing costs to fund
pensions as people live longer and investment returns on bonds
have fallen and are expected to remain low.
German carmaker BMW said last month it would close
its final salary pension scheme for its British workers, while
Tata Steel UK has recently stopped funding its plan.
Shares in Royal Mail were trading up 1.6 percent at 426
pence by 0732 GMT.
Analysts at Liberum noted a 600 million pounds jump in
contributions was unfeasible for a company forecast to make
underlying pretax profit of 522 million pounds in the year
before the scheme ends.
"However, the imposition of the closure of the scheme
without agreement on replacement arrangements, while necessary,
may be a trigger for industrial action," they said. "How the
unions react will be crucial."
Hargreaves Lansdown analyst Nicholas Hyett said that with a
highly unionised workforce, which has in the past shown itself
willing to flex its muscle in defence of members' rights,
introducing an alternative plan was likely to prove costly.
"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," Hyett said.
Royal Mail started its own defined benefits pension scheme
in 2012 ahead of its privatisation. Benefits built up by its
workers until then are backed by the government.
($1 = 0.7956 pounds)
(Editing by Kate Holton and David Holmes)