Royal Mail payments won't plug pension hole
Royal Mail’s plan to clear its pension deficit is set to leave a 2.9 billion pound hole because the group is understating the size of the deficit, a leading pension consultant said on Tuesday.
In a note for RBC Capital Markets, independent consultant John Ralfe says the company’s latest annual report shows it is basing its 17-year plan of inflation-linked annual payments of 260 million pounds on a deficit of 3.4 billion pounds — below the 5 billion pound deficit under accounting standard IAS 19.
Such a payment plan is set to leave a deficit of 2.9 billion pounds, meaning the group may have to raise charges to customers.
The Royal Mail pension scheme’s 450,000 members make it the UK’s largest corporate pension scheme by that measure.
Ralfe’s note comes shortly after the state-owned group, which lost its 350-year monopoly on postal services last year, faced strikes by workers over pensions, pay and shift changes.
The company said last week falling mail volumes, rising competition and a payment into its pension scheme led to a one-third drop in annual profit. It also attracted controversy by saying Chief Executive Adam Crozier would collect 74 percent of his performance-related bonus.
Ralfe said Royal Mail’s shortfall in payments could lead to higher charges for customers.
“Customers are paying for the pension deficit through higher stamp prices, agreed with Postcomm in the 2006-2010 price control review,” he said.
