Royal Mail scheme surplus rises 88% to 3.2bn

[POSTMAN]

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The Royal Mail Pension Plan’s (RMPP) surplus has risen by £1.5bn in 12 months, according to the postal service’s annual report.

The scheme had a surplus of £3.2bn at 29 March under the IAS 19 accounting standard compared with £1.7bn in March 2014 and £2.1bn as of 28 September 2014.

Royal Mail said the increase was largely driven by return on assets, particularly the rise in the market value of gilts and derivative assets used to hedge inflation and interest rate risk.

Despite the market conditions for many DB schemes having worsened, Royal Mail's position has been mostly protected by this hedging strategy.

The UK government took on the scheme's £10bn deficit and £38bn of liabilities before the company was privatised in 2013.

The scheme's 31 March 2015 triennial valuation is underway. The Royal Mail Senior Executives Pension Plan, a much smaller DB plan that closed to future accrual in 2012, will also be included in the valuation.

The company expects the combined actuarial surplus for the schemes will be £1.8bn if the assumptions used for the 2012 valuation are rolled forward. Under these assumptions, the schemes would have had a combined surplus of £1.6bn last September and £1.4bn last March.

The trustees and company use this basis to assess the ongoing funding needs of the schemes. The group expects to contribute around £369m to the RMPP in normal cash service costs in 2015-16.

The RMPP trustees have hedged a large proportion of the interest and inflation exposure to back up Royal Mail's commitment to keep the scheme open to defined benefit accrual until at least March 2018.

Under the 2012 triennial valuation the company agreed to pay ongoing cash contributions of 17.1% of pensionable pay until 2018. This amounted to around £400m per annum and reflected the creation of an actuarial surplus of £1.6bn as a result of the Royal Mail pensions reform in 2013.

Without this surplus the company would have had to contribute around £700m each year.

Royal Mail said it continues to expect that the RMPP actuarial surplus will reduce to neither a material surplus nor deficit by March 2018

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[fishtank]

Royal Mail said it continues to expect that the RMPP actuarial surplus will reduce to neither a material surplus nor deficit by March 2018

In my humble opinion that's a pretty clear message of intent.