The U.K.’s first target-benefit pension plan is providing members with a cost-of-living adjustment that’s 1.2 per cent higher than the consumer price index.
Members of the Royal Mail collective pension plan, which was launched in April, will receive a 11.3 per cent increase in their benefits payments. In target-benefit plans, increases are approved by plan trustees.
The pension plan’s collective formula draws on elements of defined benefit and defined contribution pension models. Members contribute up to six per cent of pensionable earnings and the crown corporation supplements this with another 13.6 per cent payment.
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During the accumulation phase, investments are pooled into a master trust to provide resilience to market shocks for individual members. Upon retirement, members will receive lifetime payments from the employer’s portion of the pension and a lump sum from their own.
While legislation paved the way for the arrival of collective pension plans in 2015, the U.K.’s pension regulator didn’t release guidelines until 2022. To date, the Royal Mail plan is the only one approved to operate in the U.K.