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Royal Mail delivers 8bn bill to the taxpayer for Royal Mail pension scheme

10 Aug 2017, 19:45

Royal Mail delivers £8bn bill to the taxpayer for Royal Mail pension scheme

http://www.cityam.com/270097/royal-mail ... il-pension

Royal Mail pension liabilities to be shouldered by the taxpayer soared by £8.5bn over the last year, the government revealed yesterday.

The exchequer is now responsible for future postal worker retirement payments totalling £46.8bn, according to financial statements dated 31 March 2017.

The taxpayer inherited responsibility for pre-2012 benefits paid into Royal Mail’s pension fund as part of the postal giant’s privatisation in 2013. Benefits accrued thereafter are the responsibility of a separate scheme run by FTSE 100 firm Royal Mail itself.

The government scheme’s increase compares with a recently announced £9bn rise in the Universities Superannuation Scheme, a hike that took its deficit to a UK-high of £17bn.


Because it is a closed scheme, only liabilities are disclosed, with the government funding them via a pool of assets.

The cost of actual payouts to postal workers totalled £1.36bn over the year, broadly in line with prior year.

Meanwhile, the post-2013 Royal Mail scheme currently boasts one of the highest surplus’ in the FTSE 100 according to a report by actuaries from LCP earlier this month. This is because it started from scratch in 2012 and was not lumbered those historical liabilities left in the government fund.

Despite appearances, Royal Mail’s scheme is struggling. It is eating through its surplus at a rate of £1.3bn a year. By next year it expects its fund to be in deficit; this is the reason Royal Mail is planning to shut its scheme in March 2018.

Royal Mail’s main trade union, the Communication Workers’ Union (CWU) has pledged to challenge the closure. Its counter-proposals have to date not been accepted by Royal Mail, meaning industrial action is a growing possibility. It is understood that if a deal cannot be reached by August, the CWU will ballot its members for strikes.

Independent pensions expert John Ralfe said news of today’s increase in the pre-2013 liabilities was “due to the large drop in long term interest rates, which has hit all defined benefit pension schemes”.

The cabinet office and Royal Mail declined to comment.


Royal Mail delivers 8bn bill to the taxpayer for Royal Mail pension scheme

10 Aug 2017, 20:21

Maybe we all need to digest what this saying and realise why our current scheme is closing do we really want carry on heading towards a massive deficit that's doomed to go bust we are lucky we were privatised so the government took on our huge pension deficit or otherwise we could have gone the same way as other companies and lost everything

Royal Mail delivers 8bn bill to the taxpayer for Royal Mail pension scheme

10 Aug 2017, 20:31

Have I missed something?

The Union have come up with a proposal on pensions which some experts said was innovative and that RM should adopt. As far as I know, there is no demand or position from the Union to keep pensions as they are, but that we all should be on one level field under the new scheme and that the risks be shared by the company, pensioners and workers.

Royal Mail delivers 8bn bill to the taxpayer for Royal Mail pension scheme

10 Aug 2017, 20:36

The thing you missed is plenty of people on here complain about being privatised without considering where our pension status would be now without the government taking on our deficit we could all have a lot more to lose

Royal Mail delivers 8bn bill to the taxpayer for Royal Mail pension scheme

10 Aug 2017, 20:57

Driver74 wrote:The thing you missed is plenty of people on here complain about being privatised without considering where our pension status would be now without the government taking on our deficit we could all have a lot more to lose



No, I am still lost. You specifically mentioned the current pension scheme but the above statement refers to the old one, so sorry still don't see what you are trying to say.

If you are saying that we should accept the current proposals as they are because there is a looming deficit (despite a current record surplus) that's an argument worthy of discussion. But as I pointed out the CWU already addressed the question about the deficit in their proposal, by suggesting a new type of pension which doesn't increase Royal Mails costs year on year.

Royal Mail delivers 8bn bill to the taxpayer for Royal Mail pension scheme

10 Aug 2017, 21:12

All I'm saying is we should be realistic I remember the one day strikes because we didn't want to close the final salary scheme prior to it closing in 2008 I admittedly thought it was a cause worth striking for but with hindsight it was never sustainable all the pension funds struggle now with low interest rates which aren't likely to change anytime soon

Royal Mail delivers 8bn bill to the taxpayer for Royal Mail pension scheme

10 Aug 2017, 21:27

Why do we have low interest rates ?

Royal Mail delivers 8bn bill to the taxpayer for Royal Mail pension scheme

10 Aug 2017, 21:47

I'm not very knowledgeable in economics but it's a decision made by the Bank of England but globally rates are at an all time low but there would be plenty of complaints if it went back to the highs of years ago also plenty of house repossessions as well

Royal Mail delivers 8bn bill to the taxpayer for Royal Mail pension scheme

10 Aug 2017, 22:12

Driver74 wrote:I'm not very knowledgeable in economics but it's a decision made by the Bank of England but globally rates are at an all time low but there would be plenty of complaints if it went back to the highs of years ago also plenty of house repossessions as well


The reason we have low bond yields and low interest rates is because of a magic money tree called quantitative easing, the side effect of this is that it has decimated safe investment pension funds. Why do we have quantitative easing, we have QE because the use of interest rates to promote growth is a busted flush since the financial crisis, you can't lower interest rates when they're practically zero already. Why is your pension screwed? Because the banks lost a huge game of poker. What's the answer?

To answer that you need to know what the end game will be.Although it's meant to stimulate lending QE actually pumps money into two things via the banks, property and the stock markets since they are the only things worth investing in. In the short to medium term that's where you invest your pension fund, it appears to be high risk but while the major banks continue with the QE policy it's safer than anything else and high yield, the real trick is knowing when the house of cards will fall if at all. Plenty economists think QE and using it to buy your own debt like the BofE is bulletproof but there are always risks in printing money and overinflating assets.

Royal Mail delivers 8bn bill to the taxpayer for Royal Mail pension scheme

11 Aug 2017, 01:41

That headline could easily be rewritten as: "Government still more than £20 billion to the good on Royal Mail pension assets"

The government took about £28 billion in assets to meet the cost of providing our pre-2012 pensions (see http://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN04940). In the five years since then, the overall cost of providing benefits and running the scheme has been about £7.15 billion (see the annual reports at https://www.gov.uk/government/publications?departments%5B%5D=royal-mail)

OK, the government will still have to find the money to pay all of the future pensions but, at the current rate, they will still be in profit on the deal until about 2031. The number of members in the pre-2012 scheme is reducing steadily: from 425K when the government took over down to 395K now. I don't know what was more depressing - the fact that 8,478 scheme members died last year or that 340 of those died before they could claim their pension.

As the pre-2012 scheme is unfunded (i.e. does not have a specific pot of money set aside to cover the pensions), the only figure which really matters is that the pre-2012 scheme cost the government £1.355 billion last year and will cost something similar this year. Everything else is just accounting. With mortality working in the government's favour plus whatever they have earned on the £28 billion that they took, I would not be too surprised if the government ended up in profit over the entire deal

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