Tag: Europe

Royal Mail is heading for a run-in with unions today after unveiling controversial plans to shut its final salary pension scheme to new members.
The group, which operates the sixth-largest pension scheme in the UK with some 450,000 members, said the cost of servicing its retirement obligations had ballooned by GBP280 million to GBP730 million during its 2006-07 financial year. This had sent first-half interim profits tumbling to just GBP22 million, compared with GBP159 million the previous year, it said.
At the last count the deficit in Royal Mail’s fund was GBP6.6 billion, ranking it high on the list of the country’s most struggling schemes.
Royal Mail becomes the latest in a growing line of British businesses to exclude new staff from schemes that ensure a retirement payout based on a percentage of a member’s final salary – opting instead for riskier “money purchase” schemes.
Royal Mail said the high cost of funding the scheme as it stood was unsustainable, particularly when set against its efforts to make its business operate competitively.

Royal Mail is today unveiling an ambitious investment plan to strengthen the group’s finances, improve competitiveness and reward its workforce.

The five-year programme, agreed by the Government, will re-position Royal Mail to compete more effectively with commercial rivals and address major funding challenges for the company.

Highlights of the programme include:

• Government agreement for a GBP1.2bn debt facility, on commercial terms, to modernise Royal Mail operations
• Restructuring of the Post Office network, already approved by Government
• GBP1bn investment in an escrow account to give security to the pension fund trustees, including GBP850m from company reserves and a further payment of GBP150m by Royal Mail
• Royal Mail agreement in principle with the pension fund trustees to fund the pension deficit, currently standing at GBP6.6bn, over 17 years
• Consultation on how best to safeguard an affordable final salary pension scheme for existing employees
• Consultation on replacing the final salary scheme for newly recruited employees with a defined contributions scheme
• Inaugural “phantom” share scheme to reward Royal Mail’s 190,000 employees, worth up to GBP5,300 per employee over five years – equivalent to a GBP1bn dividend distribution.