Pension Reform

[nataddick]

I was reading through the Summary Share Prospectus and came across a bit about Pension Reform - a definition of which is given on page 24.

“Pensions Reform”means the pensions reform with respect to the Royal Mail Sectionof the Royal Mail Pension Plan to be implemented with effect from1 April 2014.

So searched for this term in the Full Share Prospectus (450 pages long) - I don't have the time or the inclination to read through all the document but reproduce here an extract from page 236. There are other references on pages 105/6 but this extract explains what has been already been done on pensions. The Pensions Proposal presumably passed by the Trustees - deed of amendment signed 26 September 2013 !

(A) RMPP
The Pensions Transfer took effect on 1 April 2012 as a consequence of relevant legislation coming into force.
As a result of the Pensions Transfer, most of the assets of RMPP transferred to HM Government and the
RMSPS (a new unfunded public sector pension scheme) was established to assume responsibility for the
historical liabilities of RMPP accrued up to 31 March 2012. RMSPS assumed all liabilities in relation to RMPP
members who were deferred pensioners or pensioners on 1 April 2012, and became responsible for the
pre-1 April 2012 liabilities in relation to RMPP active members currently employed on 1 April 2012 (assuming
such members had opted out of pensionable service at the end of 31 March 2012 and so only based on
service and pay up to that date).

This means that RMPP, on and from 1 April 2012, still contains past service liabilities to the extent that RMPP
active members’ pensionable salaries increase in future at a higher rate than inflation (calculated by
reference to RPI). This is because active members’ pre-2008 benefits are still calculated on a “final salary”
basis – referred to as the “final salary link”, as well as in relation to certain other circumstances (e.g. death)
where past service benefits are enhanced for active members. Future service benefits under RMPP continue
to accrue post 31 March 2012 on a career average basis, being the basis which has applied for future service
accrual since 31 March 2008.

On 26 September 2013 RMG entered into a deed of amendment to implement the Pensions Reform (the
“RMPP Amendment”). The Pensions Reform is to take effect from 1 April 2014.
From 1 April 2014 onwards, the RMPP Amendment will mean that, for pension purposes, the basic pay
elements of members’ pay will increase in line with RPI (up to five per cent.) each year irrespective of the
increase in employees’ actual basic pay, subject to potential additional increases to take account of certain
increments or progressions within pay groups, as agreed between RMG and the Trade Unions from time to
time. In broad terms, the RMPP Amendment replaces the current final salary link for benefits accrued prior
to 2008.

The commercial result of the Pensions Reform and the RMPP Amendment is that the majority of those
assets held within the Royal Mail Section of RMPP (amounting to approximately £2.1 billion to fund assumed
above RPI growth in pensionable pay) are no longer needed for that purpose. These assets are therefore
available to fund the £300 million a year gap between RMG’s current contribution rate of approximately £400
million per year and the estimated cost (net of member contributions) of future such benefit accrual in the
Royal Mail Section of RMPP.