Trustees To Confirm £10.3bn Royal Mail Pension Deficit

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The trustees of Royal Mail’s pension scheme will this week write to members to confirm the company’s £10.3bn pension deficit and outline a new long-term funding agreement, I have learned.

The letter to more than 400,000 pension scheme members could be sent as soon as today, I am told. It will detail for the first time what I revealed last month: that Royal Mail’s retirement scheme deficit has trebled since its last valuation, lending credence to ministerial arguments that without an injection of private investment, the company faces a bleak future.

As I understand it, the trustees, chaired by Jane Newell, will also say that a new funding settlement has been agreed with the company over a significantly longer period than the existing 17-year deal.

The Department for Business, Innovation and Skills (BIS), which oversees Royal Mail, is likely to say in response to the letter that it welcomes the clarity over the £10.3bn pension deficit and that it is committed to the part-privatisation process outlined by Vince Cable, the Business Secretary, since the General Election.

As I also reported last week, the Shareholder Executive, which manages state-owned assets, is holding a beauty parade of investment banks this week to advise it on the privatisation process.

In an interview with the Financial Times last week, Ed Davey, the postal affairs minister, vowed: “We will do this. Where Lord Heseltine and [Lord] Mandelson failed, Vince Cable will succeed.”

A stock market listing, as well as a partial or full sale of Royal Mail, are all possible options for the Government, which is expected to stand behind the historic (as opposed to the ongoing) deficit as part of any deal.

New legislation has been promised by next June, although people close to the situation have told me that they believe it could arrive as soon as this autumn.

BIS and Royal Mail declined to comment today.

UPDATE 12:25: Just to clarify, a BIS spokesman has been in touch to say that the Government hopes to pass (as opposed to introduce) the legislation paving the way for Royal Mail's sell-off by next June.