February 1, 2018 / 1:49 PM / 2 years ago

UPDATE 2-UK's Royal Mail, union end 10-month dispute over pensions, shares rise

(Adds more details, context, shares, CWU response)

By Justin George Varghese

Feb 1 (Reuters) - Britain’s Royal Mail and the Communications Workers Union (CWU) said on Thursday they had reached an agreement to end a nearly 10-month dispute over plans to replace the firm’s defined benefit pension scheme, sending its shares higher.

Royal Mail, which has 142,000 employees in Britain, reached an agreement over pensions, pay, a shorter working week, culture and operational changes, it said in a statement.

The company’s shares were up 6.6 percent by 1553 GMT.

The CWU has been at odds with Royal Mail since last April over its plans to replace the defined benefit pension scheme and had threatened to strike if an agreement could not be reached through mediation.

Royal Mail expects the overall cash cost to the company of the proposed new pension arrangements will continue to be around 400 million pounds ($568 million) a year, the company said.

Without changes, contributions were expected to rise to 1.26 billion pounds, it said.

Under the agreement, the existing pension plan will close on March 31 and a new “collective defined contribution” (CDC) scheme set up.

Royal Mail, privatised four years ago, is one of the few big British firms still to have a defined-benefit pension scheme, which pays out a proportion of a member’s final salary depending on how long employees have paid in to the scheme.

By contrast, a defined contribution scheme is a retirement plan in which the employer and employee contribute to an investment fund that is used to buy a pension on retirement.

Under a collective scheme, contributions are pooled, instead of being held in an individual account, helping to share risk.

Royal Mail said it and the CWU would lobby government to make necessary legislative and regulatory changes so a CDC scheme could be set up.

The agreement includes a 5 percent pay hike for Royal Mail employees from October 2017 and a one-hour reduction to the working week from October 2018.

From April 2019, there will be a 2 percent increase in pay, and a further one-hour reduction to the working week from October 2019, Royal Mail added.

The pay rises and cuts in working hours are subject to efficiency initiatives being implemented, Royal Mail said.

The deal, which was unanimously agreed by the CWU’s Postal Executive, will now be recommended to the union’s 110,000 postal members in a forthcoming national ballot, CWU said in a statement.

The company added it now expects to deliver adjusted operating profit, before transformation costs, of at least 680 million pounds ($967 million) for 2017-2018. ($1 = 0.7040 pounds) (Reporting By Justin George Varghese in Bengaluru; Editing by Saumyadeb Chakrabarty and Adrian Croft)

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