Royal Mail 'put £5bn of its pension fund at risk'

[TrueBlueTerrier]

http://www.guardian.co.uk/uk/2010/sep/2 ... ecret-bets" onclick="window.open(this.href);return false;

Analyst says secret off-balance sheet stock market bets could have led to massive losses

Royal Mail has been accused of taking huge risks with its pension fund after it channelled £5bn into an off-balance sheet vehicle last year to place bets on the stock market. The money, which was effectively hidden from scrutiny by the public and Royal Mail's workers, was used to buy derivatives that paid huge returns if stock market values went up.

The transaction, which is regularly adopted by hedge funds, posed a huge risk of losses to the fund if the bets had gone wrong, said analyst John Ralfe, who discovered the scheme during his research into the pension plan. In the accounts of the Royal Mail Pension Fund he found an "economic exposure" of £5.13bn to UK and overseas shares via futures contracts as of 31 March this year.

He said the figure was up from £2.1bn a year earlier following a steep rise in share values. But Ralfe said it was equally possible the fund may have lost £2bn if the stock market had carried on falling. He said it was worrying that Royal Mail had omitted any mention of the potential liability from its annual report and accounts.

The Royal Mail pension fund accounts describe the off-balance sheet funds as a "return-seeking overlay".

Most of the fund is invested in low-risk corporate bonds and cash, but the "overlay" of investments in derivatives contracts now accounts for 20% of assets, double the 10% they represented last year.

Royal Mail, which is expected to be privatised by business secretary Vince Cable, operates a £26bn final salary pension scheme. This year the fund revealed an £8bn deficit that ministers described as unsustainable.

A spokesman for the Department of Business said the investment strategy of Royal Mail's pension fund was a matter for the company and the fund's trustees. Royal Mail was unavailable for comment.

Ralfe said part of the occupational scheme was being run like a hedge fund, with the potential for profits and losses far in excess of anything the business itself is likely to make in the near future.

"Royal Mail plc accounts show its huge pension scheme has reduced risk in recent years by moving from equities to bonds and now holds a conservative 70% of its £26bn assets in bonds to match its pension liabilities," he said.

"But, the accounts of the RM Pension Plan itself tell a different story. As well as holding 70% bonds, it is taking a whopping £5bn side-bet on UK and global equities through equity derivatives or futures contracts. If the price of equities rises, RM wins, if they fall, RM loses.

"In the year to March 2010 RM Pension Plan made £1.1bn on these equity futures bets – compare this with the mere £400m Royal Mail itself made. RM really looks like a hedge fund that happens to deliver letters."

The Communication Workers Union has expressed fears that a new owner would seek to take drastic action to close the funding gap. It has also warned its members that a new owner could take control of the fund to use the assets for the benefit of the company.

Ralfe said: "These huge off-balance sheet side bets should certainly be disclosed in Royal Mail's own accounts; since they are not, it raises the question whether Royal Mail itself and the Business Department knew about them in the run up to privatisation."

Final salary pension funds have recently grabbed the headlines as funding deficits have been blamed for wrecking takeovers and siphoning off valuable shareholder funds.

The pensions regulator has ordered firms to pour billions of pounds of extra cash into their guaranteed schemes to make up shortfalls over the next 10 years.

British Airways today signalled further progress in its merger with Iberia after an agreement over its massive pension scheme, which has one of the largest deficits in the FTSE 100.

[subbie]

This year the fund revealed an £8bn deficit that ministers described as unsustainable.

So what is being suggested here, that the side betting is amassing funds that could plug the deficit? If so why is the Gov proposing to cover the deficit.

Is the pension fund in deficit or what?

Subbie

[meercat]

So what is being suggested here, that the side betting is amassing funds that could plug the deficit? If so why is the Gov proposing to cover the deficit.
Is the pension fund in deficit or what?
Subbie

Yes this position taking in the market could wipe out the pension deficit but it could equally as easily DOUBLE IT or worse. It is nothing more than gambling with the pension pot and I can't believe it is legal for ammateurs at RM to be taking on the big boys in the City with our pension money.

This bit is totally incredible:
"In the year to March 2010 RM Pension Plan made £1.1bn on these equity futures bets – compare this with the mere £400m Royal Mail itself made. RM really looks like a hedge fund that happens to deliver letters."

So RM PLC made more profit last year from trading shares than from delievring mail.

[TrueBlueTerrier]

So RM PLC made more profit last year from trading shares than from delievring mail.

Well apart from the fact the Pension Fund (full title is Royal Mail Pensions Trustees Limited (RMPTL))and RMG are two different organisations.

The Trustee of the Plan is a trustee company: Royal Mail Pensions Trustees Limited. The board of directors of the trustee company comprises eleven trustee directors, of whom one is an independent chair, four are nominated by the Unions, one is elected by the Plan’s pensioners, five are appointed by Royal Mail Group of which two are independent trustees and three are selected from Company management. The trustee company is legally responsible for ensuring that the Plan is run properly and that members’ accrued benefits are safeguarded.

[meercat]

So RM PLC made more profit last year from trading shares than from delievring mail.

Well apart from the fact the Pension Fund (full title is Royal Mail Pensions Trustees Limited (RMPTL))and RMG are two different organisations.

The trustee company is legally responsible for ensuring that the Plan is run properly and that members’ accrued benefits are safeguarded.

Yes I get the Pension bumfph through the post too ensuring me they are independent people looking after my pension money. But come how independent do you really think they are? Read the comment from DOB again:

"A spokesman for the Department of Business said the investment strategy of Royal Mail's pension fund was a matter for the company and the fund's trustees. Royal Mail was unavailable for comment."

RMG PLC have their fingers firmly in the pie and I very much doubt 5Billion pounds would, be put on the line (or lets say 40% of that - 2Billion) without the board of RMG OKing it.

In addition there is NO way in hell that gambling like that is ensuring that members benefits are safeguarded. The Pension Board are sitting round a casino table with our pensions - and they are far from being the best card players at the table.