It is really confusing and I don't think RM have explained it very well at all. As I understand it the problem doesn't affect the new "defined contribution" scheme which began in April 2008. It only affects the old final salary ("defined benefit") scheme which ended in April 2008.
Under the old scheme your pension will be calculated at 1/80th of your
final salary for every year of service up to April 2008. That will be your final salary when you retire which could be this year, next year or 20 years time.
The cost of this pension up to April 2012 (effectively 1/80th of what your salary was at that date x your number of years service at April 2008) is covered by the Government.
The cost of the impact on your final salary of pay rises between April 2012 and the date you actually retire is the responsibility of Royal Mail.
So as a simple example, if you had 10 years service at April 2008 and your annual salary at April 2012 was £15,000 your notional pension to be guaranteed by the Government would be £15,000 / 80 x 10 = £1,875 pension per year
However, if when you actually come to retire in say 5 years time, your final salary as a result of pay increases was £17,000 then your pension would actually be: £17,000 / 80x 10 = £2,125 pension per year
Royal Mail would be responsible for ensuring that the RM Pension Fund could meet the obligation of the extra £250 p.a
As things stand RM is saying that it cannot afford to meet that obligation. Therefore it wants to limit the increase in the "salary" used to calculate your pension to RPI up to a maximum of 5%. Effectively it means your "final salary" for pension purposes won't be what you are actually earning when you retire.
This is what was proposed in the original pension changes but was one of the things that was dropped (with pressure from the CMA actually).
In order to achieve this, RM is also proposing to use the £2 billion surplus to support their final salary obligations - effectively wiping out the surplus.
