UK stamp rise to fund mail pension hole
STAMP prices will be linked in future to the size of the Royal Mail pension deficit under plans being drawn up by the postal regulator, PostComm.
The scheme, which forms part of PostComm’s current review of the prices Royal Mail is allowed to charge, is intended to combat unpredictable fluctuations in the deficit caused by factors such as increases in life expectancy and stock market performance.
The deficit has shot up from pounds 2.5 billion to pounds 4.5bn this year thanks to accountancy changes, which have stretched Royal Mail’s finances, making it ‘technically insolvent’, according to its chairman Allan Leighton.
Sarah Chambers, the chief executive of PostComm, said: ‘We are considering a mechanism that would allow large fluctuations in the pension fund deficit to be reflected in postage prices. If the deficit were to rise substantially, for example as a result of equity markets falling, then this would feed through to higher stamp prices and vice versa.’ The system would operate with a floor and ceiling that would trigger changes automatically.
The deficit has raised the stakes in the current price review, which runs until 2009 and is scheduled to be completed by the end of next month. Leighton says that while Royal Mail must address the deficit, it must also raise pounds 2.2bn to invest in improving productivity and compete with rival operators who will be able to launch comprehensive services from January under PostComm’s liberalisation plans.
Royal Mail says PostComm’s proposals, which call for price reductions across all its business and residential deliveries of 2.5 per cent below the rate of inflation, would result in up to pounds 1bn draining from the business by 2009, and this year’s pounds 537 million profit turning into a loss. It is arguing for an 8 per cent price increase instead.
However, PostComm says the current deficit has been included in its calculations, which see the shortfall being recouped over 17 years.
The issue is also causing concern among unions and the Department of Trade and Industry, which has been lobbied by Royal Mail for an injection of capital of up to the pounds 2bn shortfall to deal with the deficit. Insiders say this is unlikely.
Union sources indicate concern over alterations to the scheme, which provides a pension linked to employee’s final salary, and a retirement age of 60.
A source said: ‘We think there will be a deal where the government gives a little, the regulator gives a little, and in return Royal Mail is told to negotiate over changing the terms of the scheme. If there are moves to raise the retirement age, that would be an industrial action issue.
A Royal Mail spokeswoman said: ‘The PostComm proposals as they stand would push Royal Mail back into losses, damage quality of service, which is now the best on record, and undo the tremendous turnaround our postmen and women have achieved over the last three years.’
