UK Royal Mail set to reveal GBP4 billion pensions deficit

The Royal Mail is set to reveal a pensions shortfall of about 4 bln stg when it reports year-end figures later this month, according to The Sunday Times.

The newspaper did not name its source, but said the shortfall — which the group has to declare under the new FRS17 accounting standard — is likely to shock the group's 200,000 workforce and the government, which is still the ultimate owner of Royal Mail.

The newspaper said the company's 15 bln stg pension fund has been hit hard by falls in the stock market. But Allan Leighton, the chairman, is expected to reassure staff that the group, which in recent years has enjoyed a pensions-contribution holiday, can meet its pension liabilities, the article added.

The assessment of Royal Mail's pension position is likely to suggest the group needs to make additional payments of between 500 mln and 2.5 bln stg over the next decade. If the final figure is about 1 bln stg, additional contributions of 100 mln stg a year would be required, the newspaper said.

In another article in The Observer, the Royal Mail is also set to announce a reduction in annual operating losses from 318 mln to about 200 mln stg. The improvement is due to better performance at the core mail and Parcelforce business, according to the newspaper.

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TELEGRAPH (UK) 12th May 2003
ROYAL MAIL FACES PENSION BLACK HOLE

ROYAL Mail, the loss-making postal carrier, could find over half the money it gains from putting up stamp prices disappearing straight into the black hole in its pension fund. Last week's penny increase in both first and second class stamps will raise a much-needed additional pounds 170m for the troubled group every year. However, the company is expected to release figures later this month showing that its pension shortfall is approaching pounds 4 billion. Royal Mail, which has enjoyed a holiday from pension contributions in recent years, would need to pay over pounds 100m a year to top it up. The organisation is not allowed to increase stamp prices again for three years. However, the increased pension contribution, combined with a pounds 40m rise in National Insurance contributions and the possibility of the Government adding VAT to stamps, is likely to inhibit recovery at the company, which is still 100pc owned by the Government. A spokesman for the company declined to comment ahead of publication of the group's annual report and results. However, it is understood that the company is conducting an actuarial review into the pension scheme which, at pounds 15 billion, is one of the largest in the country. The review is likely to be presented in the autumn. Royal Mail is not expected to drop its final salary pension scheme, seen as a crucial way for the organisation to recruit and retain staff. Its annual figures, which will be presented by new executives Adam Crozier and Elmar Toime, are also expected to show that Royal Mail has managed to trim its operating losses by a third this year – on target for chairman Allan Leighton's three-year cost cutting programme, despite a slower-than-expected timetable in axing the second delivery in some areas. Royal Mail will point to its strategy of thinning out senior management, and shedding 9,000 out of the total 30,000 jobs across the business, as key factors in the improved figures, which should also show a 90pc reduction in the number of days lost to industrial action. Exceptional items related to the group's restructuring are expected to push the actual loss figure much higher, but Royal Mail will attempt to concentrate on the operating figure, because it argues that this gives a true picture of the company's performance. Royal Mail is known to have campaigned vigorously for an earlier review of stamp prices, which would have allowed it to put them up again if necessary in less than three years' time. However, this was not accepted by postal regulator PostComm when it was deciding on the price control regime for the group. Sources said that increased pensions contributions had been considered when Royal Mail, Postcomm and the Government decided on the group's three-year recovery plan.