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Last Updated: Thursday, 8 February 2007, 14:35 GMT
Royal Mail pension scheme threat
Postal worker in London
Royal Mail is facing tough competition
Royal Mail plans to close its final salary pension scheme to new entrants in a bid to tackle its pensions deficit, which has hit 6.6bn.

It is also going to look at how it can safeguard the final salary scheme for existing members.

Royal Mail said payments made into the pension fund were hitting profits, which, it revealed, had fallen 86% to 22m for the six months to September.

A trade union official said the threat to pensions came as "a complete shock".

A chill will be sent through the rest of the public sector where pensions are conspicuously more generous than what's generally available in the private sector
Robert Peston
BBC business editor

About 167,000 of Royal Mail's 190,000 workers are currently paying into its pension scheme, while the company itself is trying to plug the gap with payments of 730m a year.

BBC business editor Robert Peston said it was difficult to see how restructuring the pension scheme could be done without hitting staff benefits, or forcing them to pay more.

Losses at the Post Office network had also doubled, Royal Mail said.

It also announced a refinancing package agreed with the govenrment, including a 1.2bn loan to modernise the business.

Fears

Royal Mail has lost a string of big contracts since the postal system was opened up to competition last year.

[Business customers] should not have to pay for the increased cost of our pensions
Adam Crozier, Royal Mail chief executive

These include one worth 12m from the Department for Work and Pensions - leading to fears that other government bodies could follow suit.

Chief executive Adam Crozier said the need to prop up the pensions fund was damaging the company's competitiveness, because Royal Mail had to increase the price of products and services to help cover the cost.

"Around 93% of our mail volumes come from business customers and they should not have to pay for the increased cost of our pensions - and if we ask them to do so, more of them will simply go to the competition," Mr Crozier said.

Phantom shares

A six-month consultation on replacing the final salary pension scheme for new recruits would now begin, he said, as well as the firm looking at how to keep an affordable final salary scheme for existing staff.

This would "ensure the problem does not get worse for the company or our pension fund members," Mr Crozier added.

Royal Mail also unveiled plans to give "phantom" shares to its employees - said to be worth 5,300 per worker over five years.

In a scheme similar to that at John Lewis Partnership, about a fifth of the value of Royal Mail would be set aside for workers which could see up to 1bn redistributed if the business meets modernisation targets.

Phantom shares could result in phantom money and phantom jobs
Dave Ward
Communication Workers Union

The Communication Workers Union (CWU) reacted angrily to news that the final salary pension scheme for new employees was under threat and said the announcement had been "a complete shock".

"We have not been involved in discussions on this issue nor have we even been made aware of these intentions," CWU deputy general secretary Dave Ward said.

"Ignoring the union on the crucial issue of the pension scheme is irresponsible."

Mr Ward was also critical of the proposed "phantom" shares scheme.

"They could result in phantom money and phantom jobs," he said.

"We remain determined to guarantee real money, real jobs and a better future for postal workers."


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