We'll all pay for posties' pension shift

[TrueBlueTerrier]

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Slowly but surely the Postal Services Bill is making progress through Parliament.

Provided there is no legislative logjam - or the Coalition does not disintegrate - the Bill is expected to get Royal Assent next summer.

Although the main objective of the legislation is to pave the way for the part-privatisation of Royal Mail, it will also lead to the dismantling of the Royal Mail Pension Plan, currently the third biggest by assets (behind the Universities Superannuation Scheme and the BT Pension Scheme) and the largest by membership.

The defined benefit plan has 437,000 members and pays out £1bn a year in pensions to 182,000 ex-posties. Of the remaining members, 139,000 are 'active' (continuing to pay contributions) and 116,000 are deferred.

The dismemberment of the scheme, when and if it takes place, will be a massive pensions event, although it hasn't really registered yet on anyone's radar.

Overnight, a funded scheme with £26bn of ringfenced assets will be transformed into an unfunded one - with the Government taking responsibility for meeting the pension obligations accrued up to that date.

A Royal Mail 'mark two' defined benefit plan - this time funded - will sweep up future pension contributions from eligible posties when the existing plan is broken up. New workers are already being directed into a defined contribution fund.

The Government runs a number of unfunded pension schemes - which are also known as pay-as-you-go pensions. The biggest are the Armed Forces Pension Scheme, the Principal Civil Service Pension Scheme, the NHS Pension Scheme and the Teachers' Pension Scheme, so an unfunded Royal Mail scheme should not present it with any unique challenges, although the numbers involved are daunting.

When the scheme is dismantled - D-Day is expected to be in April 2012 - the Government will grab the £26bn of assets and sell them off. In the process it will boost its depleted coffers. Chancellor George Osborne will be delighted.

In return, the Government will be obliged to pay the old fund's £1bn annual pensions bill. It will be required to honour all of the pension promises made by the Royal Mail Pension Plan so that retired and retiring workers should not be disadvantaged.

Why is all of this happening? Well, it's the only way the Government thinks it can make Royal Mail attractive to buyers. No company, the Government believes, would dream of touching Royal Mail if it had to take over responsibility for its defined benefit scheme.

This is because the fund's £26bn of assets are dwarfed by £34.4bn of pension liabilities and the Pensions Regulator has been banging its war drum about the frightening size of this deficit.

A 38-year 'recovery' plan has already been put in place with the reluctant agreement of the regulator - who would have preferred the recovery period to be considerably shorter. The plan involves Royal Mail making annual deficit payments of £282m.

This sum would surely put off most if not all bidders for Royal Mail. By breaking up the pension scheme, all of these issues are conveniently swept away.

So, if the Bill becomes law - and assuming there are no spanners thrown in the works by our European 'friends' - and the Royal Mai l Pension Plan is no more, who will be the winners and losers?

Well, provided a future Government does not renege on the commi tment to honour all pensions accrued up to D-Day (a possibility that cannot be ruled out), posties have little to fear from the changes.

Indeed, it could be argued that they will be better off because their pensions will no longer be tied to the fortunes of a deficit-riddled fund. Also, it means their pensions will no longer be threatened if Royal Mail were to go bust, forcing the scheme into the Pension Protection Fund.

Unlike the BT Pension Scheme, there is no 'Crown guarantee' - a promise from the State - to protect workers' pensions in the event of Royal Mail going broke.

The fact that the trustees of the Royal Mail Pension Plan, chaired by Jane Newell, are supporting the pensions overhaul, should also reassure workers.

The Government, of course, is a winner because it will receive a £26bn windfall while only being required to find £1bn a year to pay postal pensions.

And the taxpayer? Well, of course, we're all losers because we will ultimately pay - through higher taxes - for the £8.4bn pension deficit that the public purse will be forced to absorb.

[Dorset Plodder]

Well TBT that's a lot to digest first thing in the morning. Reading between the lines it looks like at least we might still get a pension if RM is sold off. Is that the gist of it? I try to be optimistic but as I've been well shafted over the last couple of years with losing money on endowments and the sale of me house, and that's without working for RM, it's hard to forsee a rosey outcome. s**t Magnet that's me!

[TrueBlueTerrier]

As I understand it the benefits already accrued are safe as the government will take over responsibility - obviously that's not a 100% rock solid guarantee but it is probably the strongest possible.

I have a feeling though that our pensions will be downgraded to a defined benefits/contributions scheme which is not as good as the current Career Average scheme most of us are on (you are on DC if you joined in the last 2 years or so).

So to answer yes in all likelihood our pensions benefits to this point are safe unless the UK Gov goes bust, or there is a overwhelming disaster that destroys society. But will our pensions stay the same - unfortunately I don't think so.

[fishtank]

Is that the gist of it? I try to be optimistic but as I've been well shafted over the last couple of years with losing money on endowments and the sale of me house, and that's without working for RM, it's hard to forsee a rosey outcome. s**t Magnet that's me!

You're not a s**t magnet Dorset....you are the result of unregulated capitalism.
Your endowments lost you money because the fund managers paid themselves obscene bonuses when the going was good without protecting the fund against losses.

You lost money on your house because bankers lent money to people who couldn't really afford it producing massive "on paper" profits...and paying themselves obscene bonuses without protecting their banks against the massive losses that would inevitably follow when these people couldn't afford to pay back the loans.

The pension deficit mainly came about because the government decided to pocket the profits generated by the pension holiday and then leave the problem in the hands of the company.

Your pension was never really at risk due to the pension deficit...the company was.
Would the Government have allowed Royal Mail to go bust?....i honestly doubt it but you never know.

Will your pension be safer in a Government unfunded scheme?...right up to the point where they think it's "unaffordable" or "not value for money"...i would imagine.
After all the Government make the rules....and frequently change them.

[Dorset Plodder]

Thanks for the morale support Fishtank. I find it ironic that the Government's picking up the Tab when they were the ones who "helped themselves" to our pensions pot in the first place. I'll keep on paying into a Personal pension Scheme as well just to cover my back Thank You.

[Night Tonic]

Ah, the old 'government money' myth. When will you ever learn, there IS no government money, it comes from the tax payer. However you look at it, you'll be paying for the pension yourself, just indirectly.

[TrueBlueTerrier]

Ah, the old 'government money' myth. When will you ever learn, there IS no government money, it comes from the tax payer. However you look at it, you'll be paying for the pension yourself, just indirectly.

Umm wasn't everyone doing so already - smoke and mirrors I am surprised you fell for it.

Whether we get sold off or not our pensions to the point of privatisation will be paid by the Government. After privatisation it may change but all tax payers are paying for our pensions, including us, and always have been. Its just the government in the form of RM were not paying directly into the pension.