Pensions woes return to haunt Royal Mail with IPO looming

[TrueBlueTerrier]

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Royal Mail Group is facing an extra £300m annual bill from its pensions, one year on from a multi-billion-pound deal that was supposed to have solved its pension issues once and for all ahead of a public listing.
Pensions woes return to haunt Royal Mail with IPO looming

The prospect of new pensions difficulties emerged in a letter sent by Royal Mail to its staff and its trade unions this week and seen by Financial News. In the letter it warned them that the pensions issue is not yet solved and they may have to accept curbs on their benefits.

The warning comes in the same week that government business and enterprise minister Michael Fallon announced the appointment of four investment banks – UBS, Goldman Sachs, Barclays, and Bank of America Merrill Lynch – as bookrunners on the IPO, which is planned for "this financial year".

The new-look Royal Mail Pension Plan was created in April last year with £2.2bn of assets and a zero deficit. It is closed to new joiners but has 112,000 current staff as members.

The government took on £38bn of Royal Mail's historical liabilities in order to prepare the way for the postal operator's privatisation. It was believed no private investors would take on a firm with a pension deficit so large.

However, in the year since, a projected actuarial deficit of £162m has developed in the new plan, according to its latest set of financial results for the year ended March 31. Royal Mail Group described this in the results as an "estimated rolled forward basis" for the deficit calculation.

In a statement sent to Financial News yesterday, Royal Mail said that the full valuation, when it arrives, could lead to its payments into the fund rising to £700m a year from the current £400m, suggesting a new £300m-a-year pensions bill for the company.

In its letter, Royal Mail said that its pensions costs were "significant and growing" and put this down to "conditions in financial markets". In recent years pension fund deficits have worsened thanks to low yields on government bonds, which are used in actuaries' calculations.

To deal with this, the company has proposed a fairly technical change to the plan's terms. Staff would find the rate at which they can earn new pension entitlements limited to 5% a year - which means that if their salary were to go up by more than that, the increase over 5% would not be taken into account for pension purposes.

If staff and unions agree to the latest pensions changes, Royal Mail said in its statement that the new arrangements would be legally binding, including on any future owners of the company - a protection staff don't currently have. The firm added: "This would be confirmed by government at the time of any sale."

A spokesman for the Department for Business Innovation and Skills confirmed this morning that any changes that were accepted would be legally binding.

The £2.2bn of current plan assets are intended to fund increases to current members' pensions. By restricting them to a maximum 5%, this means the company could redirect some of this money to fund some part of the extra contributions it is expecting to have to pay.

The Communication Workers' Union said it is alarmed by the proposals. Dave Ward, its deputy general secretary, said scheme members were "entitled to be confused, disappointed and angry" at the news, and added that the emergence of this issue at the same time as the company was preparing for privatisation raised "huge question marks over its legitimacy and legality".

He added: "It is inevitable that this issue will become not just a serious industrial matter but also a major political issue." The CWU is currently balloting its members on whether to back the privatisation and IPO plan or not.

Jon Millidge, Royal Mail company secretary, said in a statement: “Changing the terms of the Royal Mail Pension Plan in the way we have suggested would enable the group to commit to keep the plan open, subject to certain conditions, without increases to members’ contribution rates or retirement age."

[windermeredave]

I claimed my pension when I turned 60 in August 2011 though I am staying on till I am 65, I would assume I am in the government scheme, is my pension safe?

[Budfrog]

I claimed my pension when I turned 60 in August 2011 though I am staying on till I am 65, I would assume I am in the government scheme, is my pension safe?

So long as the country does not go bankrupt yes, as it is underwritten by the Govt up to March of last year.

[oralrural]

I claimed my pension when I turned 60 in August 2011 though I am staying on till I am 65, I would assume I am in the government scheme, is my pension safe?

Claimed both pensions and lump sums as well.
Was advised to do this becauseonce claimed it cannot be taken away or touched only increased.
The advisor said back in 2011 that something was amiss and to claim all.

[stephen500]

I claimed my pension when I turned 60 in August 2011 though I am staying on till I am 65, I would assume I am in the government scheme, is my pension safe?

Claimed both pensions and lump sums as well.
Was advised to do this becauseonce claimed it cannot be taken away or touched only increased.
The advisor said back in 2011 that something was amiss and to claim all.

I can't claim for another 2 years and 8 months. Even then at 55 I would lose some. I have to wait until at least then, then I have a decision to make

[savo]

Similar scenario to me Stephen, can claim my ( deferred) pension from age 60, but wondering whether to take it @ 55 ( bout 2 and half years away ).

Not sure whether the current developments impact on deferred pensions, but might want it early in any case.