Royal Mail Posts A £300 Million Pension Deficit

[TrueBlueTerrier]

http://www.iexpats.com/royal-mail-pension-deficit/" onclick="window.open(this.href);return false;

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.

[UnhappyGremlin]

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.

But in not increasing contribution rates or delaying our retirement, would we not end up with a lower pension income?
Which would mean, for some at least, a longer working life as they may not be able to live on the new lower pension.
It would be a back door way of increasing contributions (I believe there is no longer a limit of years for contributions made) whilst we work on as we can't afford to retire, and therefore increasing retirement age, also via the back door.
And all for a problem we didn't create, but will ultimately pay a very high price for.

[k979aaa]

Yet another pension grab by royal mail do they all think we are senile already these conning bast*ards need telling once and for all something stinks it smells like Canadian Bacon and it's overdone!.

[nataddick]

This is a poorly researched article by someone who has responded to a press release and not checked out the facts thoroughly. RM are claiming a shortfall of £300m per annum but do not explain how that number was arrived at in the first place and have certainly not justified it to plan members. The £2 billion of assets left in the fund were left there for a reason, agreed with the Government, which has so far not been mentioned in any press coverage I have read. It is clear RM do not want to pay more than approx £400m a year in pension contributions post privatisation and want to use our own fund to boost the Group operating profits until 2018 when RMPP, as we know, it will be closed and replaced by an inferior defined contribution scheme.

I now have the consultation booklet and will be trawling through every line before providing a formal response. Interesting, that RM can now see 5 years ahead whereas before in was only 3 years. Based on the 'pensions solution' and the need for further changes since it - it is clear that RM cannot even see 1 year ahead. Or, as I suspect they have known all along where this was going and were reluctant to reveal the true position a year ago for fear of reprisal. The route is clearly known, yet the milestones are being kept secret.

The consultation document is being touted as being very important to read and all staff should make time to do so. I have worked in pensions for many years and I will need to examine the finer points in great detail, so what chance does the average OPG have who had has little exposure to such a complex area of finance ? No disrepect to anyone intended. There are load of caveats in the document and it will need very clever lawyers and pensions experts to advise the CWU bearing in mind RM will have a 'no expense spared' approach to employing their own professional advisers.

The starting pistol has been fired.

[k979aaa]

This is a poorly researched article by someone who has responded to a press release and not checked out the facts thoroughly. RM are claiming a shortfall of £300m per annum but do not explain how that number was arrived at in the first place and have certainly not justified it to plan members. The £2 billion of assets left in the fund were left there for a reason, agreed with the Government, which has so far not been mentioned in any press coverage I have read. It is clear RM do not want to pay more than approx £400m a year in pension contributions post privatisation and want to use our own fund to boost the Group operating profits until 2018 when RMPP, as we know, it will be closed and replaced by an inferior defined contribution scheme.

I now have the consultation booklet and will be trawling through every line before providing a formal response. Interesting, that RM can now see 5 years ahead whereas before in was only 3 years. Based on the 'pensions solution' and the need for further changes since it - it is clear that RM cannot even see 1 year ahead. Or, as I suspect they have known all along where this was going and were reluctant to reveal the true position a year ago for fear of reprisal. The route is clearly known, yet the milestones are being kept secret.

The consultation document is being touted as being very important to read and all staff should make time to do so. I have worked in pensions for many years and I will need to examine the finer points in great detail, so what chance does the average OPG have who had has little exposure to such a complex area of finance ? No disrepect to anyone intended. There are load of caveats in the document and it will need very clever lawyers and pensions experts to advise the CWU bearing in mind RM will have a 'no expense spared' approach to employing their own professional advisers.

The starting pistol has been fired.

What royal mail is trying to do is make the business look good at our long term expense it is a fire sale and our pensions are toast!.

[UnhappyGremlin]

The consultation document is being touted as being very important to read and all staff should make time to do so. I have worked in pensions for many years and I will need to examine the finer points in great detail, so what chance does the average OPG have who had has little exposure to such a complex area of finance ? No disrepect to anyone intended. There are load of caveats in the document and it will need very clever lawyers and pensions experts to advise the CWU bearing in mind RM will have a 'no expense spared' approach to employing their own professional advisers.

Agree totally.
Am currently trawling through it, and it isn't easy reading, and very hard to understand.
It appears that it is the latest attack on what is undoubtedly a long term plan of attacks (that started at least 6/7 years ago) to slowly and gradually destroy our pension.
My view/impression is that RM are attempting to bully us into agreement, and at some point in the not too distant future they will be back claiming more changes are required "due to circumstances beyond their control". The caveats are already in there as you say, excuses are prepared, with them mentioning "uncertain economic times" and the likes repeatedly.
For people like myself, and many of my colleagues too, the proposal makes hard reading, and is even harder to understand, and we will all rely on persons such as yourself and the union to simplify/put into lay-mans terms, what this proposal actually means for us and our pension.
Though, I'm sure we all know that it isn't good, but we need to know just how far and how bad it really is/will be.

[UnhappyGremlin]

Simple solution.

Cease all management/senior management bonuses till the company is completely free of any debt in its pension fund.

Oh wait a minute that'll never happen.

No the simplest solution would be to make all pension changes apply to senior management(board members) pensions.....
Again, won't happen either....

[Brain Fury]

Good point though, what is the (alternative) solution? I mean nobody likes having their pension earnings reduced but how should the potential £300 million shortfall be tackled?

Unless of course you don't believe that there is a shortfall as a result of under performing investments.There's no doubt that UK Gilts which most pension companies invest in have tanked over the last couple of years and will probably continue to do so.

[heapsy]

The trustees need to be more radical in their approach to investing. Investing in commercial and residential property should be one of the first things they do. I don't mean through funds as one would if you paid into a private pension, I mean directly buying property itself. With the financial clout the pension fund has they should be able to buy residential property by the hundreds. Rented out they would rake in thousands every week. Long term the property would also increase in value so could, when the time is right, be sold on. There's plenty of assets that could and should be considered for investing in.

[stephen500]

The trustees need to be more radical in their approach to investing. Investing in commercial and residential property should be one of the first things they do. I don't mean through funds as one would if you paid into a private pension, I mean directly buying property itself. With the financial clout the pension fund has they should be able to buy residential property by the hundreds. Rented out they would rake in thousands every week. Long term the property would also increase in value so could, when the time is right, be sold on. There's plenty of assets that could and should be considered for investing in.

our Trustees are too dumb. They moved out of shares just as they recovered. They went into gilts and we know what happened to them They don't appear to be the smartest people on the planet.

[TrueBlueTerrier]

The trustees need to be more radical in their approach to investing. Investing in commercial and residential property should be one of the first things they do. I don't mean through funds as one would if you paid into a private pension, I mean directly buying property itself. With the financial clout the pension fund has they should be able to buy residential property by the hundreds. Rented out they would rake in thousands every week. Long term the property would also increase in value so could, when the time is right, be sold on. There's plenty of assets that could and should be considered for investing in.

our Trustees are too dumb. They moved out of shares just as they recovered. They went into gilts and we know what happened to them They don't appear to be the smartest people on the planet.

I wonder if they have the same advisors as Gordon Brown did over gold prices.

[mr hil.]

After reading the big red book, translating it into English and realizing that the main thrust is to limit any future indexing increases to a maximum of 5% per annum regardless of what the actual inflation figures are so if it is higher than 5% we would lose out (Elsewhere on this forum I have read that the average inflation for the last 50 odd years is 5.7%)

I thought well I will be voting NO!!

I read a little further, only to find that RM don't need to ask me, they don't need to ask the Union, they don't need to ask the Trustees!

They just have to ask themselves.

They don't require anybody else's permission to do what they propose.

That's how I read it...I hope I am wrong .

[RobertT]

After reading the big red book, translating it into English and realizing that the main thrust is to limit any future indexing increases to a maximum of 5% per annum regardless of what the actual inflation figures are so if it is higher than 5% we would lose out (Elsewhere on this forum I have read that the average inflation for the last 50 odd years is 5.7%)

I thought well I will be voting NO!!

I read a little further, only to find that RM don't need to ask me, they don't need to ask the Union, they don't need to ask the Trustees!

They just have to ask themselves.

They don't require anybody else's permission to do what they propose.

That's how I read it...I hope I am wrong .

That's right, under auto-enrollment rules they have to offer their staff a pension, but as long as it meets minimum standards they can do pretty much what they want.

[nataddick]

Agree with Robert - RM are just meeting the legal requirements in so far as the pensions consultation is concerned. I became involved in the consultation over the move from final salary to career average and questioned lots of the calculations provided. I was told they were too complex for me to understand, until I explained that I was more than adequately qualified both academically and professionally to do my own calculations and then, to my surprise, the information was released. The bottom line was that it didn't actually change a thing, other than I knew what was going to happen and the basis of their calculations.

Got home from work to find a letter from Joanna Matthews setting out the role of the Trustees - a total cop out on the consultation process until it is concluded ? So there you have it - 3 CWU nominated members on the Trustee Board plus 1 from Unite - all waiting for the consultation to end before they decide to change the Rules to suit RM's requirements. The alternative could be closure of the existing defined benefit schemes and a 'new' defined contribution offered to all . Democracy at work within RM - I don't think so ?

[nataddick]

Just came across a 'Your Pension' booklet issued by the CWU after State Aid approval which can be downloaded from:-

http://www.cwu.org/54871/royal-mail-pensions.html" onclick="window.open(this.href);return false;

A couple of interesting extracts under Sections 2 & 4

Section 2

'The remaining Royal Mail pension plan
• Going forward, for active members, the company will continue to operate
the Royal Mail Pension Plan and this will be responsible for payment
of pension benefits built up after the transfer date (expected to be the
31st March 2012) and also for maintaining the final salary link.'

Section 4

'The years’ service and pension
benefits that you built up until
1st April 2008, continue to be
calculated on your final salary
at the time of your retirement.'

The bits in bold have been highlighted by me.

Is it any wonder the members are rightly confused over the new proposal - When is a final salary not a final salary ?