Update about the Royal Mail Pension Plan

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You may have seen the article in today’s Sunday Times regarding the Royal Mail Pension Plan (the Plan)

Last year, we addressed the historic deficit of the Plan. Unfortunately, the pension transfer could not address the cost of members’ pension benefits from 1 April 2012 onwards.

What we are doing and why

Because of the financial markets, including historically very low gilt yields, defined benefit pensions are becoming increasingly costly for all the remaining employers who offer such a scheme. The trustees of the Plan and the Company are reviewing the cost of the pension you earn. This review could lead to the cost increasing by about £300 million each year from current levels. This is just not affordable, for you or us. We need to deal with this cost uncertainty.

This would be necessary, irrespective of whether Royal Mail is sold or not. We have shared this issue and some ideas with the unions about how it can be resolved.

What happens if Royal Mail is sold?

We will continue to seek a possible agreement with the unions which would, subject to its conditions, be legally binding on the Company and would give members comfort in the event that Royal Mail is sold. The agreement would be binding on the Company regardless of any change of ownership. This would be confirmed by government at the time of any sale.

Any such changes to the Plan would only happen following a consultation with members and the unions.

Keeping the Plan open

We do not want to close the Plan because we know how much you value your membership. We do not want to raise your contributions.

Our proposal would be to use some of the £2 billion of assets left in the Plan following the pension transfer last year.

This £2 billion, which comes in a large part from Company contributions paid in previous years, is held in trust by the Plan’s trustees for the benefit of members and the Company. If we can reach agreement, we would be able to commit to keep the Plan open, subject to any agreed conditions and periodic reviews. The Company would continue to pay its current, significant rate of contributions (around £400 million) to the Plan each year.