Regulator's Concerns Over Royal Mail's 35-Year Pensions Deal

[POSTMAN]

http://blogs.news.sky.com/kleinman/Post ... d14a187610" onclick="window.open(this.href);return false;

Further to my post on Wednesday about the confirmation of Royal Mail's £10.3bn pension deficit, I've now learned that the company has agreed a 35-year funding deal with the scheme's trustees.

The funding settlement, which is about twice as long as the existing agreement, is intended to reassure the trustees and regulator that the company has a robust plan to tackle the gargantuan deficit.

As I've reported on several occasions, resolving the deficit headache will be a vital stepping stone to bringing in investment through a part-privatisation of Royal Mail.

It may not as it stands, however, be sufficient to satisfy the Pensions Regulator, which is now examining the new agreement.

In a letter sent to scheme members yesterday, Jane Newell, chair of the trustees, said:

"The Trustee has been asked to inform you of the following: 'The Pensions Regulator has not yet had the opportunity to carry out a detailed assessment of the formal financial health check. However, the provisional view from the regulator is that it has substantial concerns about both the deficit figure and other aspects of the agreement which the Trustee reached with Royal Mail. The agreement is now subject to a formal review by the regulator.’ The Trustee is working with the Pensions Regulator to help it conduct its formal review."

The Pensions Regulator, which has also expressed concerns about large pension scheme black holes at BT and British Airways, and Royal Mail declined to comment further.

[POSTMAN]

It's £8.4billion aint it.

[POSTMAN]

Royal Mail pension plan opposed by regulator

http://www.bbc.co.uk/news/business-10819577" onclick="window.open(this.href);return false;

The Pensions Regulator is opposing a crucial plan to pay off the £10.3bn deficit in the Royal Mail pension scheme over 38 years.

The pension scheme's trustees have struck the deal with the company.

Royal Mail says it will continue to make "substantial" extra payments to clear the deficit.

But the regulator says it has "substantial concerns about both the deficit figure and other aspects of the agreement".

Details of the deal between the company and the trustees are being kept private for the time being.


But the BBC has learned that the plan involves repaying the deficit over 38 years, more than twice as long as the current deficit repayment plan.

Deficit payments would be tiered, starting a bit above their current level but rising sharply in four or five years' time.

"The regulator is passionately opposed to the idea," said a source close to the scheme.

"They would see it as a green light to every other scheme in the country."

The £10.3bn deficit was calculated as of 31 March 2009, but the trustees say that a valuation a year on suggests the deficit has fallen to £8.4bn.

Formal review

The regulator's concerns and its formal investigation have been revealed in a letter to all Royal Mail pension scheme members from Jane Newell, chairman of the trustees.

"The trustee is pleased to report that agreement has been reached with Royal Mail regarding the ongoing funding of the Royal Mail pension plan," she said.

"Royal Mail will continue to pay substantial contributions in excess of the current level to repair this deficit [£10.3bn].

"The agreement is now subject to a formal review by the regulator," she added.

The deficit in the scheme has long been identified as the biggest financial problem facing the postal service.

In the Queen's Speech, the newly-elected coalition government said it would revive the previous Labour government's plan to part or wholly privatise the Royal Mail.

It said this would include plans to "resolve the problems" with the pension deficit.

Last month, the Business Secretary, Vince Cable, asked the businessman Richard Hooper to update a report on the Royal Mail he had written for the Labour government in December 2008.

That had recommended that the state should take over the pension scheme, to relieve the Royal Mail of the burden of eradicating the deficit and clearing the way for its part privatisation.

Previous agreement

Under a previous deal struck between the company and the pension trustees in 2006, Royal Mail committed itself to paying an extra £270m a year over 17 years, to clear a deficit of just £3.4bn.

In 2008, the scheme was closed to new joiners, who now join a "money purchase" fund, rather than a final-salary scheme.

Existing members were moved into a career-average scheme, which is much less generous than the old final-salary version.

Along with raising the standard retirement age to 65, the Royal Mail hoped all these changes would eventually cut its total contribution rate from about 30% of staff salaries to about 11%.

[dazzlin72]

The letter i received said that the pension deficit had been reduced to £8.4 billion by the RM paying £2 billion into the pot in the last year. So why have a 35 year plan? RM should have the deficit cleared in the next 5 years if they keep paying into the plan at the same rate.
Just imagine how much profit they will be making then, if they can make £404 million profit now and still pay £2 billion off the deficit.

[RobertT]

The letter i received said that the pension deficit had been reduced to £8.4 billion by the RM paying £2 billion into the pot in the last year.

It didn't say that at all! The deficit will have reduced because the stock market actually did quite well during the 09/10 tax year.