Royal Mail's DB cash balance scheme rises in deficit

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https://www.professionalpensions.com/ne ... es-deficit

The deficit of Royal Mail’s defined benefit (DB) cash balance scheme increased over the year as the company awaits secondary legislation for collective defined contribution (CDC), according to its annual results.

The scheme - which is a transitional arrangement until the postal service can implement its proposed (CDC) scheme - had an IAS 19 accounting deficit of £394m, up from £177m in the 2019/20 year. The group has contributed 15.6% of pensionable pay to the scheme, while members contribute 6%.

However, Royal Mail said the scheme was not in funding deficit and did not anticipate that deficit recovery payments would be required.

CDC schemes are now allowed by law since the Pension Schemes Act 2021 came into play in February. Royal Mail is expected to be the first employer to set up CDC arrangement, but detailed secondary legislation and tax changes must first be introduced by the government. It will also require authorisation from The Pensions Regulator before it can begin accepting contributions.

Royal Mail said it is continuing to work with the Communications Workers Union and government to introduce the necessary changes.

The company also said that the Royal Mail Pension Plan (RMPP), which closed to future accrual in 2018, had an accounting surplus of £3.7bn on 28 March 2021, down from £5.6bn the previous year. The company said this was due to rising gilt yields over the year which pulled down the value of assets, while its liabilities rose due to the fall in the difference between the discount rate and the Retail Prices Index. The actuarial surplus of RMPP as of 31 March 2021 was estimated to be around £163m, down from £575m on 31 March.

The Royal Mail Senior Executives Pension Plan saw its accounting surplus decrease slightly from £10m to £9m over the year. The company confirmed the planned buyout of the scheme - which had been delayed due to a need for more clarity on GMP equalisation - is expected to occur in 2022.

The postal service's annual results revealed a 116% surge in profits to £702m, capitalising on the e-commerce boom that has accelerated during the pandemic.