The pension deficit

[pjthebear]

Can someone please explain what it actually means?

[Straight4ward]

The liabilities exceed the assets. (I think the figure being talked about at the moment is £10 billion.)

Put quite simply, were the scheme to be wound up now there would insufficient funds to pay members their pensions, or at least those that fall due in the future.

The scheme is being kept afloat by current contributions. The money being paid in at present will not be used to provide a pension for the person contributing but will be used to provide a pension for a member who retires earlier.
Why has this situation arisen? Well the recession in the 90’s and the recent collapse of the financial system have led to a massive reduction in the value of the assets owned by the pension fund.

However, the gravity of the situation was greatly exacerbated by successive governments allowing Royal Mail to take “pension holidays” for a number of years. “Pension holidays” are a euphemism for not paying contributions into the scheme. This was allowed because at the time the value of the assets of the scheme were calculated to be vastly in excess of its liabilities and the government (Royal Mail’s shareholder) was only too happy to take the contributions to the scheme in those years as a form of dividend or taxation.

Come back Guy Fawkes, all is forgiven!

[Big Daz]

Straight4ward

Good explanation

[Ahebban]

I concur with Big Daz

Can you please stick around for when the National Agreement is fed to the membership. Undoubtedly, such clear and precise explanation will be required to unravel the complex delights therein!

[Straight4ward]

Ahebban,

"Can you please stick around for when the National Agreement is fed to the membership. Undoubtedly, such clear and precise explanation will be required to unravel the complex delights therein!"

If only I could, but surely ain't clever enough for that! No doubt, it will be as clear as mud.

[Big Daz]

Ahebban,

"Can you please stick around for when the National Agreement is fed to the membership. Undoubtedly, such clear and precise explanation will be required to unravel the complex delights therein!"

If only I could, but surely ain't clever enough for that! No doubt, it will be as clear as mud.

Conference policy is it should meet plain english standards.

Thats the tricky part, taking whats been agreed to go out and writing it down in plain english.

[belle smith]

The liabilities exceed the assets. (I think the figure being talked about at the moment is £10 billion.)

That depends on what accountance standards you use it's estimated at £10billion on the FRS17 accountance standards, or as in the Hooper review £5.9billion on the SSAP24 accountance standards.

Put quite simply, were the scheme to be wound up now there would insufficient funds to pay members their pensions, or at least those that fall due in the future.

The scheme is being kept afloat by current contributions. The money being paid in at present will not be used to provide a pension for the person contributing but will be used to provide a pension for a member who retires earlier.
Why has this situation arisen? Well the recession in the 90’s and the recent collapse of the financial system have led to a massive reduction in the value of the assets owned by the pension fund.

If the scheme were wound up now RM would go into insolvency, and the pension would enter the PPF (pension protection fund) That won't happen the goverment would not allow it for their own sake.
NB. The PSB includes provision for retrospectivly changing RMPP to a public sector 'pay as you go scheme' This removes the The Pension Regulators power to wind up the scheme and gives that power to The Minister of State.[/quote]

However, the gravity of the situation was greatly exacerbated by successive governments allowing Royal Mail to take “pension holidays” for a number of years. “Pension holidays” are a euphemism for not paying contributions into the scheme. This was allowed because at the time the value of the assets of the scheme were calculated to be vastly in excess of its liabilities and the government (Royal Mail’s shareholder) was only too happy to take the contributions to the scheme in those years as a form of dividend or taxation.

Come back Guy Fawkes, all is forgiven!

The Pension was roughly 105% funded between 1994 and 2000, (the pension holiday was between 1990 and 2003) but that figure can be manipulated by changing the mix of investments (by selling bonds and buying equities) This makes the investment strategy more risky, which is why the scheme moved from a small surpuls to large deficit between 2000 and 2003 when equity markets fell.

[Straight4ward]

Big Daz,
Thats the tricky part, taking whats been agreed to go out and writing it down in plain english.

You are completely right on this. If, as we are led to believe, an agreement has been reached then both sets of negotiators will need to sign off on a written version of what has been verbally agreed.

I wouldn’t mind betting that there will be further disagreements and the need for more negotiating before both sides are prepared to sign off on a final written agreement.

What usually happens in these circumstances is that we end up with a “fudge”, a form of words that ends up being open to interpretation and that’s when all the trouble begins. One side will claim it means one thing and the other side will claim it means something else.

Not only will the devil be in the detail but he’ll be in the wording as well.

[Straight4ward]

Belle Smith,
Thank you for supplying a far more detailed explanation than I could manage and putting some “flesh on the bones” as it were.

[pjthebear]

Thanks to everybody for your explanations it's much appreciated.

Now I don't have to pretend I know what people mean when they talk about the pension deficit.

[easter bunny]

under the protection scheme, in the unlikely event it is needed all members of it was covered for 90 percent... retired members would be covered for 100 percent...