A right Royal raid

[TrueBlueTerrier]

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Transferring the Royal Mail pension scheme’s assets will lead to an uncertain bill for taxpayers

Forget the granny tax or the raid on child benefit: the biggest money spinner produced by the Chancellor during Budget week was his swoop on the Royal Mail pension scheme.

On 1 April, the scheme will transfer £28bn’s worth of assets to the Treasury – George Osborne plans to immediately begin selling those assets, using the proceeds to repay public debt. In return, the Treasury has agreed to take responsibility for all pension benefits accrued to date by members of the Royal Mail scheme, liabilities it estimates will total £37.5bn.

But crucially for the chancellor, this sum does not have to be included in the national accounts.

“In taking pension scheme liabilities off Royal Mail’s hands, the government is also getting rid of the biggest single obstacle to the privatisation of the organisation”

Benefits will be paid when they fall due by a government-administered, unfunded pension scheme – the money will come from taxpayers, in other words – but those costs don’t count towards public debt under national accounting rules.

The deal is similar to initiatives seen in countries such as Argentina, Hungary and Portugal, where a government raid on the pension funds of leading banks last year helped it hit deficit reduction targets agreed during the country’s bail-out by the European Union and the International Monetary Fund.

At the Royal Mail, however, the Treasury’s aims are more complicated. The £28bn windfall is certainly useful in the context of national debt. But in taking pension scheme liabilities off Royal Mail’s hands, the government is also getting rid of the biggest single obstacle to the privatisation of the organisation, which ministers see as vital to its modernisation.

Indeed, Royal Mail is getting the better end of the deal. At a stroke, its pension fund deficit is transferred off its books, with the taxpayer taking responsibility for the shortfall.

And in this defined benefit plan, that deficit, currently valued at £9.5bn, could prove much larger.

“The short term gain for the public finances is likely to prove expensive in the long run”

For some scheme members, the deal is just slightly more nuanced. While all accrued benefits will continue to be underwritten by the taxpayer – just as they were in the Royal Mail’s crown guaranteed scheme – active members will now move into a new scheme administered by the Royal Mail on a standalone basis.

Still, it is taxpayers who should be most concerned. The short term gain for the public finances is likely to prove expensive in the long run.

In theory, moreover, the Chancellor could repeat the trick with private sector pension funds where a crown guarantee still operates – there are around a dozen of these, mostly in industries privatised in the eighties – or even on a wider scale.

For now that seems unlikely.

Royal Mail is an unusual situation given the desire for privatisation and the Treasury is not in the pension risk business. Still, for a Chancellor eager to make quick inroads into public debt – tough without an economic recovery – you never know.

[flyingsam]

When postman paid into the pension during the 10 year pension holiday RM took,did their money go into their pension.Or did it go straight to the government at the time.If it was not paid into the pension,is there not a legal way of getting the money back to the postman .??

[DGP1]

When postman paid into the pension during the 10 year pension holiday RM took,did their money go into their pension.Or did it go straight to the government at the time.If it was not paid into the pension,is there not a legal way of getting the money back to the postman .??

It doesn't matter now, the government has guaranteed our pensions now

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The deal is similar to initiatives seen in countries such as Argentina, Hungary and Portugal, where a government raid on the pension funds of leading banks last year helped it hit deficit reduction targets agreed during the country’s bail-out by the European Union and the International Monetary Fund.

We might as well borrow financial strategy from bannana republics.

Robert Maxwell couldnt of thought of these scams.