Mail pensions ‘facing collapse’
Royal Mail and its pension fund are in danger of collapse if ministers do not press ahead with part-privatisation, the pension scheme trustees say. Royal Mail and its pension fund are in danger of collapse if ministers do not press ahead with part-privatisation, the pension scheme trustees say.
The trustees' chairman, Jane Newell, says the fund's deficit may be "significantly larger" than the £5.9bn estimated last year.
The deficit was identified last year in a review of Royal Mail as the main problem hindering the business.
Plans for the postal service will be introduced in parliament on Thursday.
Ministers want to sell a stake of about 30% to the private sector to help pay for the modernisation of the service.
Billy Hayes, general secretary of the Communication Workers Union (CWU), said that the trustees' letter was "a distraction designed to scare MPs".
"Privatisation is not linked in any way to sorting out the pension fund. It's not even about protecting pension benefits, it's about making the company viable for take-over," he added.
About 140 Labour MPs have signed a motion opposing the part-privatisation.
The Hooper review, published in December, recommended that the government take over the Royal Mail pension scheme, to remove the burden of the deficit from the business, as part of a partial privatisation process.
Ms Newell's letter echoes this, and warns that in its present state the company is financially very weak, and is technically insolvent with its debts outweighing its assets.
If the recommendations of the Hooper review are not pushed through, she argues, then the trustees would be forced to change the way they value the scheme.
That would increase even further the cost of paying pensions in the future for the scheme's 450,000 members, with the knock-on effect of making the deficit even larger.
As the Royal Mail could not afford to pay higher contributions, then this might trigger the collapse of the company and the closure of the scheme.
A larger deficit is "highly unlikely to be affordable by Royal Mail, with potentially devastating consequences", Ms Newell says.
"At present, in a winding-up the plan would not even be able to provide as much as 50% of members' benefits," she adds.
The company is already committed to paying an extra £284m a year, for the next 15 years, to pay off a £3.4bn deficit that was calculated in 2006.
Another valuation of the scheme has to be agreed by 30 June next year.
In December, business secretary Lord Mandelson, to whom Ms Newell's letter is addressed, endorsed the recommendations of the Hooper review that called for a minority stake in the business to be sold off.
He said Royal Mail could not survive in its current form, due to severe financial constraints and falling demand for sending letters, and needed fresh investment in technology to prosper.
Lord Mandelson denies the plan amounts to a sell-off of the business, saying it will be a "partnership" that maintains Labour's commitment at the last election to keep Royal Mail in public ownership.
But unions will stage a mass protest on Tuesday against the plans, which they say are "deeply unpopular".
"We urge the government to take responsible action and respond to the justified concerns of UK citizens who do not want to see this valuable public asset carved up," said Billy Hayes, general secretary of the CWU union.
Unions point to the fact that Royal Mail made a profit of £255m in the last nine months of 2008 and argue that it is healthy and can thrive in its current form.
The protest will come on the same day as Royal Mail bosses are questioned by MPs on their plans for the company.
The plans could potentially result in the largest backbench rebellion of Gordon Brown's premiership.
Unless Labour rebels are persuaded to back the measures, the government may have to rely on opposition MPs' support to get them through.
