Where next for Royal Mail pensions?

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According to the Royal Mail's latest annual accounts, its pension scheme - the biggest in the UK - has a deficit of around £7bn. But what does that mean for its members and the public?

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Independent pensions consultant John Ralfe tells Channel 4 News online about the implications of Royal Mail's pension black hole.

He said: "The deficit itself doesn't mean anything to the existing members - as long as Royal Mail doesn't go bust. That is the only concern on that score, and even if it does there is some statutory protection.

"So the main concern is whether the company goes into administration.

"And this is a company with declining revenue trying to drag a huge pension deficit along with it, which in itself makes if an unattractive prospect for rescue from the private sector. But there are perhaps political reasons why the government, as a shareholder, would not let it go bust…"

The pension scheme has around 450,000 members, making it the biggest in the UK, but Ralfe feels its pensions pot has not been managed effectively.

He said: "The Royal Mail has a diminishing revenue stream but the nature of its work is very labour intensive, it employs and has employed a lot of people.

"Over the years they have not put in enough money to meet the cost of new pension promises – they have put money into equities rather than bonds and that risk has not paid off.

"As far as I understand in 2001 there was no deficit. Now there would still have been a deficit today – even if they had invested in bonds – but it would have been much, much smaller.

"Royal Mail's management had an opportunity to address the pensions problems but they didn't."

Earlier this year business secretary Peter Mandelson abandoned plans to part-privatise the Royal Mail, and Ralfe says the pension problem is yet to be answered.

He said: "Under the previous legislation that was dropped the government had agreed to take on the pension liability, as well as other assets and partial privatisation.

"But the underlying problems that motivated those plans have not gone away. What is plan B? It isn't clear to me even as a pensions expert what happens next...

"There aren't any other precedents, because technically it isn't a state pension like the one for the civil service, and it's not a private one like that at BT. There are no precedents. The problem isn't going away."