Pension Shortfall debate

[redlen]

The Old final salary pension scheme ended in 2008. For the Government to sell Royal Mail it had to take on the deficit with payments built up over many years under Crozier and Leighton of around 10 billion

From 2008, the Royal Mail Defined Benefit Cash Balance Scheme (DBCBS) deficit has grown to £177m as at 31 March 2020, up from £72m at 31 March 2019. This I believe is due to the move into a part time work force paying for existing pensioners

My question is with the final salary pension closed 2008 and moved over to Capita

The contributions up to 2008 when it closed take it no longer attract any future growth potential?
The Government are simply using those pension assets for their own wealth growth potential

Am no Qualified financial adviser so asking the question subjectively, and will take replies the same as a simple topic for debate, and not advice

[Tman]

The government of the day took over the assets and liabilities of the old scheme, and Capita run it.
There is no "growth potential" as the pensioners are paid according to their accrued years etc. No additional bonuses but no risks or defaults either.
What's not to like?

[redlen]

The scheme that replaced it has also been mismanaged. Now the new scheme they want to introduce nothing more than an endowment ponzi

[RobertT]

The Old final salary pension scheme ended in 2008. For the Government to sell Royal Mail it had to take on the deficit with payments built up over many years under Crozier and Leighton of around 10 billion

From 2008, the Royal Mail Defined Benefit Cash Balance Scheme (DBCBS) deficit has grown to £177m as at 31 March 2020, up from £72m at 31 March 2019. This I believe is due to the move into a part time work force paying for existing pensioners

My question is with the final salary pension closed 2008 and moved over to Capita

The contributions up to 2008 when it closed take it no longer attract any future growth potential?
The Government are simply using those pension assets for their own wealth growth potential

Am no Qualified financial adviser so asking the question subjectively, and will take replies the same as a simple topic for debate, and not advice

The final salary scheme closed in 2008, and was replaced by the CARE scheme which ran from 2008-2018. That was replaced by the DBCBS until CDC starts.

The government took on the liabilities of our pensions up to 2012, which includes all final salary and the first 4 years of CARE. At the time the scheme had assets worth about £28 billion, but with liabilities of about £38 billion, hence a £10 billion deficit.
The last time I heard, the liabilities had increased to about £46 billion.

The £28 of assets the government took over were basically swallowed up by the Treasury – they are not invested and so there is no scope for them to increase in value. Our pensions up to 2012 are now paid for by the UK taxpayer.

Privatisation has been bad in terms of the job we do on a day to day basis, with the latest attack on terms and conditions being an example. But it was the best solution for our pensions – RM would never have been able to afford that £10 billion deficit and it may have been much higher by now!

The DBCBS comes under the balance sheet of the RM as a company, and their accounts state there is no need to make extra payments into it. Although technically it is in deficit as there currently isn't enough money in the pot to pay everyone's lump sums.

The contributions that have gone in and the annual bonuses that have been added are guaranteed. So ultimately it's up to the company to ensure their long term investments meet the goal of paying out our benefits.
Some of that money could be invested for 30-40 years!

It's got nothing to do with the move to a part time workforce, as the DBCBS is basically just a savings account with everyone having a proportional DBCBS pot, based on their pensionable pay and hours worked, plus annual bonuses.

[Tman]

The scheme that replaced it has also been mismanaged. Now the new scheme they want to introduce nothing more than an endowment ponzi

That may be the case, but your post was about the >2008 Final Salary scheme.

[redlen]

The current pension Scheme from 2008 is already 177 million in deficit

[RobertT]

The current pension Scheme from 2008 is already 177 million in deficit

You already said that upthread! ^

Although the most recent(May 2022) RM Report & Accounts actually says the following(page 39):

An IAS 19 deficit of £390 million (2020-21: £394 million) is shown on the balance sheet in respect of the DBCBS; however, the scheme is not in funding deficit and it is not anticipated that deficit payments will be required.

See here: https://www.royalmailgroup.com/media/11 ... 9-5-22.pdf

The current scheme for section A, B & C members of the RMPP is the DBCBS, which actually started 10 years later than you think in April 2018, and isn't even a pension.

*Anyone who joined RM after April 2008 will either be in the RMDCP or paying into the DBCBS via section F of the RMPP.

You may also be interested in the following, also taken from the latest R&A:

The RMPP scheme closed to future accrual in its previous form from 31 March 2018. The pre-withholding tax
accounting surplus of the RMPP at 27 March 2022 was £4,182 million (28 March 2021: £3,666 million). The prewithholding tax accounting surplus has increased by £516 million (28 March 2021: £1,884 million decrease) in the
year, largely as a result of a significant increase in the ‘real’ discount rate (the difference between RPI and the
discount rate based on corporate bond yields), which has significantly reduced liabilities. This has been offset by a
decrease in the value of the RMPP assets as a result of a large increase in index-linked gilt yields, against which the
assets are hedged.

[baldrick]

no risks or defaults either.

I think there is a risk that this Government will not honour promises to increase pensions annually in line with CPI.

[baldrick]

The £28 of assets the government took over were basically swallowed up by the Treasury – they are not invested and so there is no scope for them to increase in value. Our pensions up to 2012 are now paid for by the UK taxpayer.

Iirc there were £29bn in assets. The Government took them to reduce the UK national deficit.
The projected £10bn shortfall was based on an assumption that members' life expectancy would continue to increase, so a longer time paying out pensions. UK life expectancy has now levelled out, and there is a possibility that it might fall.

[RobertT]

no risks or defaults either.

I think there is a risk that this Government will not honour promises to increase pensions annually in line with CPI.

There are government plans to change pension increases to CPI(H) in 2030, which would affect section C members more than A/B, as they currently have their pensions increased by RPI.

https://www.ft.com/content/413286de-990 ... 349ead6f1d

[RobertT]

The £28 of assets the government took over were basically swallowed up by the Treasury – they are not invested and so there is no scope for them to increase in value. Our pensions up to 2012 are now paid for by the UK taxpayer.

Iirc there were £29bn in assets. The Government took them to reduce the UK national deficit.
The projected £10bn shortfall was based on an assumption that members' life expectancy would continue to increase, so a longer time paying out pensions. UK life expectancy has now levelled out, and there is a possibility that it might fall.

According to the house of commons library website, around £40 billion of liabilities were actually transferred to the government aswell as around £28 billion of assets.

The assets were indeed used to pay off national debt, but at the same time increased the burden on future taxpayers, potentially increasing future national debt by more.

The most recent RMSPS report and accounts(31 march 2021) states:

The total pension liability at 31 March 2021 is £48.6 billion (31 March 2020: £49.0 billion). This relates to benefits accrued before 2012 for qualifying members and their beneficiaries of the RMPP as at 31 March 2021.

Life expectancy may well be slowing and could fall, but the liabilities of the RMSPS will need to reduce by a hell of a lot to make the deal good for the next generations of UK taxpayers.