Shares in Royal Mail Group (LON:RMG) have fallen into the red in London this morning, as the company updated the market on its pension review, having warned that its current defined benefit scheme is unaffordable beyond next year. The privatised postal operator is now offering employees a choice between a defined benefit or contribution pension scheme, in an effort to reach an agreement with trade unions.
As of 09:18 BST, Royal Mail’s share price had lost 0.83 percent to 407.60p, underperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.08 percent lower at 7,407.73 points. The group’s shares have lost just under a fifth of their value over the past year, and are down by nearly 12 percent in the year-to-date.
Royal Mail announced in a statement this morning that following extensive talks with its unions, it was now offering its employees a choice between a new defined benefit scheme and a defined contribution scheme. The postal operator expects the overall cost of the proposal to be funded within its current £400 million annual pension contribution.
“Royal Mail believes that the risk to the Company of the proposed Defined Benefit cash balance scheme would be materially lower than under the current Plan and is a manageable risk for us,” the postal operator pointed out.
The FTSE 100 group said that the Unite union will hold a ballot to seek members’ views on the proposal. The Communication Workers’ Union has also been offered the proposal but has not yet commented on the new plan.
The 15 analysts offering 12-month price targets for Royal Mail for the Financial Times have a median target of 475.00p on the shares, with a high estimate of 590.00p and a low estimate of 350.00p. As of July 7, the consensus forecast amongst 17 polled investment analysts covering the postal operator advises investors to hold their position in the company.