Exclusive: Royal Mail To Reveal 10.25bn Pension Black Hole

[Geezer]

Exclusive: Royal Mail To Reveal 10.25bn Pension Black Hole
http://blogs.news.sky.com/kleinman/Post ... f4a069e2d5


Mark Kleinman June 25, 2010 4:47 PM

The trustees of Royal Mail's retirement fund will meet next week to agree plans to tackle the company's pension deficit, which now stands at about £10.25bn, I have learned.

The trustees, chaired by Jane Newell, will meet on Wednesday to approve a long-term funding settlement for the scheme. The Pensions Regulator, which has given the company until June 30 to agree a deal with the trustees, may grant an extension if an agreement isn't reached by Wednesday's deadline.

I am told that the new funding arrangements will involve Royal Mail continuing to inject about £800m into the scheme annually (around £300m of which is aimed at addressing its historic liabilities) but that the agreement to cover the deficit will be over a longer period than the current 17-year plan.

That is designed to provide a greater degree of certainty to the regulator and the trustees, and avoids the possibility of crippling the company by forcing it to pay more money into the scheme at a time when it urgently needs capital to finance its modernisation.

The details I’ve obtained about Royal Mail’s plan to address the black hole in its pension scheme comes just a day after ministers asked Richard Hooper, the former deputy chairman of the media regulator Ofcom, to update his previous report on modernising the company amid intensifying competition from the private sector. Vince Cable, the Business Secretary, yesterday referred to the Royal Mail retirement scheme as "a huge pensions time-bomb".

While it has been anticipated for some time, the scale of Royal Mail's pension deficit is staggering given that three years ago it was valued at just £3.4bn.

The size of the deficit and details of the funding settlement could be announced as early as the end of next week, I'm told, although I should point out that there's no certainty that the trustees or regulator will agree to the funding proposals currently on the table.

In one sense, the latest funding settlement is meaningless in that the Government is expected to agree to stand behind the scheme's historic deficit when it introduces new legislation to facilitate an injection of private capital into Royal Mail later this year. Under those plans, it is understood that Royal Mail will continue to stand behind the scheme's ongoing liabilities.

Nevertheless, it will be an important milestone for Royal Mail ahead of legislation to bring in private sector investment, either through the sale of a minority shareholding to a single buyer or a stock market listing. Donald Brydon, the company's chairman, has indicated a desire to pursue the latter route although it will be up to ministers to determine the final outcome.

It's also worth pointing out that the actuarial valuation that will be announced within the next couple of weeks is from the end of March 2009. That's significant because both stock markets and bond yields were significantly lower than they are now, so if the same valuation was recalculated at today's prices, the deficit would probably be a billion pounds or two lower.

In an interview earlier this month with The Daily Telegraph, Ed Davey, the postal affairs minister, said: “The truth is that Royal Mail’s situation, if nothing is done, will become increasingly dire. If we don’t transform Royal Mail, it will be dragged down by a lethal combination of falling mail volumes, low investment and potentially one of the worst pension crises for employees in UK history.”

The coalition's plans follow an aborted attempt led by Lord Mandelson, Cable's predecessor, to offload a 30 per cent stake in Royal Mail last year.

Royal Mail declined to comment today, while Newell could not be reached for comment.

[Glenno]

Correct me if i am wrong but dont RM have to announcce the deficit by a certain time??????

[belle smith]

Correct me if i am wrong but dont RM have to announcce the deficit by a certain time??????

'Jane Newells' letter to over-Lord Mandelson

The law gives the trustee and Royal Mail until 30 June 2010 to agree this valuation.

Agree not quite announce.

[fishtank]

Correct me if i am wrong but dont RM have to announcce the deficit by a certain time??????

The word is they have been trying to come to some mutually agreeable solution and they have finally arrived at one..

1.Cancel the death in service payout.
2.Ramp up the D2D to 25 for 1 week.

Any survivors get to split what's left of the pension pot.