Post Office faces pension shortfall
Radical plans to axe 30,000 jobs at the Post Office could blow an £800m black hole in its pension fund. The warning of the potentially devastating shortfall is buried in a report by accountant Arthur Andersen for Post Office regulator Postcomm.
It reveals that loss-making Consignia – the new name for the Post Office – will almost certainly have to ‘make additional contributions’ to its pension fund because of the massive job cuts being drawn up as part of plans to save £1.2bn.
The revelation that Consignia’s pension fund could swing from surplus to a huge deficit follows widespread panic among many other big companies about the costs they face to ensure pension schemes are fully funded.
Last week, frozen food group Iceland and accountants Ernst & Young closed final salary* schemes to existing members of staff. About half of all other members of the FTSE 100 Index say they are considering closing final salary schemes or did not set them up in the first place.
Andersen predicts that Consignia will probably have to pour at least £600m into the pension fund in the financial year 2002-2003 to make up the shortfall.
That would be a crippling blow for Consignia, which is expected to rack up losses of more than £200m this year. The company, which loses 1p on every first-class letter it delivers, would be forced to go capin-hand to the Government to top up the pension fund.
Consignia chief executive John Roberts admitted to Financial Mail that the company would have to make additional contributions to the pension fund.
‘We do not know yet by how much,’ he said. ‘It depends on how many people leave us and their ages. We are negotiating this now. By law we have to make up the pension fund contributions and we will do it.’
Roberts said that up to 30,000 jobs could go among Post Office workers. And he hinted that there could be even more redundancies if extra competition from private firms cherrypicked Consignia’s most profitable businesses.
Resurgent union militancy, the growing popularity of emails and slumping productivity has already led to rising losses at Consignia.
The three Post Office pension funds, managed by Hermes, are among the biggest in the country and were valued at nearly £18bn last November.
