Royal Mail to cap benefits despite liability transfer

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The Royal Mail Pension Plan (RMPP) is planning to cap members’ pensionable pay increases as costs escalate and privatisation looms, despite a liability transfer to the government.

The RMPP, which supports staff for the Royal Mail and the Post Office, is currently in surplus after transferring majority of its scheme assets and liabilities to HM Treasury in March 2012 (PP Online, 10 June 11).

This move released the company of its liabilities for active and deferred members up until the end of March 2012. However, it kept £2.2bn of assets to cover future liabilities as the scheme remains opens to future accrual.

As of March 2013, RMPP showed a scheme surplus of £825m, from a £2.7bn deficit a year earlier, as it was released from legacy liabilities.

However, in a letter sent to scheme members the RMPP has proposed capping any increase in pensionable pay for benefit calculation at the retail prices index (RPI) up to 5%, regardless of pay rises.

The letter said the expected cost of providing benefits has increased 70% since 2009, which would "effectively reverse the cash benefits of last year's pension transfer [to the Treasury]".

It also said without any changes to scheme benefits, it would put considerable strain on the "commercial viability" of the business.

The letter also explained RMPP had considered closing the scheme, increasing member contributions and retirement age and reducing future benefits but felt these were not in the best interest for members or the company.

The Communication Workers Union (CWU) deputy general secretary Dave Ward said this was definitely linked to the upcoming privatisation of the Royal Mail.

However, the Royal Mail denied this claim and said these changes would have to be made irrespective of privatisation.

The company said it currently contributes £400m a year into the scheme, and not making these changes would increase this £700m - which would be unsustainable.

Royal Mail Group company secretary Jon Millidge said: "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.

"This option would allow members to continue to build up benefits in the plan at a time when many employers are closing their defined benefit (DB) schemes to existing members."

However, Ward added: "Members will be rightly alarmed as to why we now have another problem and we know that the scheme is not in deficit. It is inevitable that this issue will become not just a serious industrial matter but also a major political issue."

Ward confirmed neither the Royal Mail Group nor the Post Office had triggered the formal statutory 60-day consultation.

"When that happens, we will call a special postal group conference specifically to deal with these proposals and their implications on privatisation," he said.

The RMPP has approximately 112,000 members and closed to new members in 2008. It also changed from a final salary scheme to career average revalued earnings (CARE).

The government is to privatise the Royal Mail with an initial public offering (IPO) expected within this financial year.