Royal Mail Pension Plan - Commons Library Standard Note

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Published 18 July 2013 | Standard notes SN04940
Authors: Djuna Thurley
Topic: Pensions, Postal services
The Royal Mail Pension Plan (RMPP) is a funded Defined Benefit pension scheme for employees of Royal Mail Group. The actuarial valuation of the scheme as at 31 March 2009 showed it to have a deficit of some £10 billion.

On 16 December 2008, Richard Hooper, who had been asked by the Labour Government to conduct an “independent review of the UK postal services sector”, published his report. This proposed that, as part of a package of recommendations, the Government should “tackle the historic pension deficit, to enable the company to reap the benefits of modernisation.” The Government agreed and the Postal Services Bill 2008-09 published on 26 February 2009 would have provided for the transfer of historic pension liabilities to the government. However, on 1 July 2009, the then Business Secretary, Lord Mandelson, announced that he would not proceed with the plans as market conditions meant the Government had not been able to find a partner for Royal Mail on appropriate terms. In June 2010, the Conservative-Liberal Democrat Coalition Government asked Richard Hooper to produce an update of his report. Again, he recommended that the Government should relieve the Royal Mail of its pension deficit as part of a wider package of measures. The Government agreed and legislated for the transfer in the Postal Services Act 2011.

On 1 April 2012 the Government transferred Royal Mail’s historic liabilities of around £40 billion from Royal Mail’s pension scheme to a new public sector scheme (the Royal Mail Statutory Pension Scheme, RMSPS) to be administered by the government. At the same time around £28 billion of Royal Mail’s pension assets were transferred to government. The Trustee of the RMPP would be responsible for pension benefits earned after 31 March 2012. The RMPP was left fully funded at the time of transfer.

In May 2013, Royal Mail Group launched a consultation on a proposal to reform of the scheme. It said that, although the transfer of the historic deficit had left the RMPP more secure, it had not addressed the cost of accruing benefits. The Communication Workers’ Union said it would oppose any change to pension arrangements by executive action.

This note looks at: the development of the RMPP, the deficit and proposals for dealing with it and recent reform proposals. For more on the background to the Bill, see Library Research Paper 10/67 Postal Services Bill 2010/11 and RP 11/01 Postal Services Bill – Committee Stage Report. Other notes of possible interest include SN 6668 Privatisation of Royal Mail.

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