Royal Mail Posts A £300 Million Pension Deficit

A massive financial hole has appeared in the Royal Mail’s pension scheme – just a year after a multi-billion pound deal was meant to have plugged the gap.

Now analysts believe the news could scupper – or severely dent – government plans to float the postal firm later this year.

Royal Mail bosses have written to staff saying there is a £300 million deficit and they could face a reduction in their pension benefits.

Now the unions are warning that the pension deficit is set to become a major political and industrial issue ahead of a planned initial public offering which will see the Royal Mail privatised.

Workers at the Royal Mail are probably confused since a new pension plan was unveiled in April 2012 which had more than £2.2 billion in assets and a deficit of zero.

Closed scheme

That scheme now has 112,000 members and is closed to new employees.

The government has pumped money into Royal Mail ahead of the planned privatisation and is believed to have taken on £38 billion in historical liabilities for the post deliverer.

One reason for this is that no private investor would ever take on the company with such a massive pension deficit.

Now, according to the Royal Mail’s results for the last financial year, there is a projected actuarial deficit of £162 million.

To cover that amount, and for future obligations, the Royal Mail says fund payments will have to increase to £700 million a year from the current £400 million.

That is a yawning gap of £300 million which the company will have to find.

Union ballot

In the letter to its staff, Royal Mail says its pension costs are ‘significant and growing’ and they point to the conditions in financial markets which have brought low-yielding government bonds which actuaries’ use for their calculations.

In a bid to sweeten the deal to get an agreement, the Royal Mail says that any change to the plan would be legally binding – even for future owners.

Dave Ward, deputy general secretary of the Communication Workers’ Union, said his members were entitled to feel ‘disappointed, confused and angry’ and questioned the legality of privatisation at this time.

The union is balloting members on whether they back privatisation or an IPO, and Mr Ward added: “This issue will inevitably become a major political issue and a serious industrial matter.”

The Royal Mail confirmed in a statement that it was planning to change the terms of its pensions’ plan which would see contribution rates remain the same and without increasing the retirement age.

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