Royal Mail in threat to axe pension fund
The chairman of Royal Mail says he is ready to close the group’s final-salary pension scheme, one of the largest of its kind in Britain, if plans to part-privatise Royal Mail fail, reports The Times.
The chairman of Royal Mail says he is ready to close the group’s final-salary pension scheme, one of the largest of its kind in Britain, if plans to part-privatise Royal Mail fail, reports The Times.
The article continues:
Donald Brydon’s warning came in the same week as three large British companies – BP, Barclays and WM Morrison – made moves to reduce their future pension liabilities.
Brydon said: “If we don’t get this relief [part privatisation] from the government we are going to have to look at the same option as Barclays and close the pension scheme to existing members.”
The government is committed to selling a stake in Royal Mail’s letters business. But there is only one bidder left in the negotiations – CVC, the private-equity group, and its offer is regarded as too low.
Closing the pension scheme, which is based on career average pay, would be a huge blow to its 150,000 members and could lead to strikes by postmen. “I don’t think they would be pleased, but this is reality,” Brydon said. “The government will not bail out the pension fund and employees if the [part-privatisation] bill is not passed.”
He added: “You can bet that telling our existing members that there is a fundamental risk to their pension is not where I want to be. But if we are unable to get any progress with the government on selling a stake, closing the fund will be at the top of the options list.”
Experts believe other big companies are also considering sharp cuts to pension benefits, including tax-payer-backed banks such as Royal Bank of Scotland, Northern Rock and Bradford & Bingley.
Royal Mail would become the first government body – it is in effect owned by the state – to make inroads into public-service pension entitlements.
Brydon said it had little choice. The deficit in its pension fund could be more than £10bn when the latest triennial review is published this summer.
That would require an additional £500m a year to be injected into the scheme on top of the Royal Mail’s existing commitment.
This could mean more than £1bn a year of Royal Mail’s profits were being put into its pension fund. Brydon said it was already facing a £800m cash outflow this year.
Brydon’s warning was made on the eve of the Communication Workers Union’s annual conference. The union is already incensed at Labour’s commitment to part-privatise Royal Mail.
Meanwhile, the Pension Protection Fund, the government “lifeboat” set up to take on the responsibilities of bust companies, is estimated to have seen its deficit treble in the past 12 months to almost £1.5bn after being forced to soak up the liabilities of many defunct firms.
There are now 292 pension funds poised to fall into the lifeboat fund. These include schemes run by Woolworths and Lehman Brothers and a giant fund run by Nortel, the collapsed telecoms firm.
Pension experts insist that the protection fund would be bust if it was judged on the same measures as private pension providers.
