Page last updated at 12:14 GMT, Tuesday, 24 February 2009

Mail pensions 'facing collapse'

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The government's plans are due in parliament on Thursday

Royal Mail and its pension fund are in danger of collapse if ministers do not press ahead with part-privatisation, the pension scheme trustees say.

The trustees' chairman, Jane Newell, says the fund's deficit may be "significantly larger" than the 5.9bn estimated last year.

The deficit was identified last year in a review of Royal Mail as the main problem hindering the business.

Plans for the postal service will be introduced in parliament on Thursday.

Ministers want to sell a stake of about 30% to the private sector to help pay for the modernisation of the service.


Adam Crozier, chief executive of the Royal Mail, told MPs he expected the pension fund's deficit to grow much larger at the next valuation of the scheme.

The deficit... is highly unlikely to be affordable by Royal Mail, with potentially devastating consequences
Jane Newell

"The deficit when revalued by the trustees will show a deficit of between 8bn and 9bn," he told MPs on the select committee for business, enterprise and regulatory reform (BERR).

"We can't afford to pay double our pension contributions or pass them on to the customers as that will drive volumes down," he added.

Earlier, Tim Brown, chief executive of the postal regulator Postcomm, told MPs that removing the pension burden from the Royal Mail would not solve all its financial problems, such as those caused by declining letter volumes and the effects of the recession.

Royal Mail chief executive talks about its losses

It would help short term profitability and cash flow, but "that doesn't save them for the longer term" he told MPs on the BERR select committee.

However Billy Hayes, general secretary of the Communication Workers Union (CWU), said that the trustees' letter was "a distraction designed to scare MPs".

"Privatisation is not linked in any way to sorting out the pension fund. It's not even about protecting pension benefits, it's about making the company viable for take-over," he added.

About 140 Labour MPs have signed a motion opposing the part-privatisation.

'Devastating consequences'

The Hooper review, published in December, recommended that the government take over the Royal Mail pension scheme, to remove the burden of the deficit from the business, as part of a partial privatisation process.

Sean tait
Potentially to get the same pension, I might even have to work past 65
Postal worker Sean Tait

Ms Newell's letter echoes this, and warns that in its present state the company is financially very weak, and is technically insolvent with its debts outweighing its assets.

If the recommendations of the Hooper review are not pushed through, she argues, then the trustees would be forced to change the way they value the scheme.

That would increase even further the cost of paying pensions in the future for the scheme's 450,000 members, with the knock-on effect of making the deficit even larger.

As the Royal Mail could not afford to pay higher contributions, then this might trigger the collapse of the company and the closure of the scheme.

A larger deficit is "highly unlikely to be affordable by Royal Mail, with potentially devastating consequences", Ms Newell says.

"At present, in a winding-up the plan would not even be able to provide as much as 50% of members' benefits," she adds.

The company is already committed to paying an extra 284m a year, for the next 15 years, to pay off a 3.4bn deficit that was calculated in 2006.

Another valuation of the scheme has to be agreed by 30 June next year.


In December, Business Secretary Lord Mandelson, to whom Ms Newell's letter is addressed, endorsed the recommendations of the Hooper review that called for a minority stake in the business to be sold off.

It is wrong to privatise Royal Mail. Part-privatisation will be the thin end of the wedge
David King, Herefordshire

He said Royal Mail could not survive in its current form, because of severe financial constraints and falling demand for sending letters, and needed fresh investment in technology to prosper.

Lord Mandelson denies the plan amounts to a sell-off of the business, saying it will be a "partnership" that maintains Labour's commitment at the last election to keep Royal Mail in public ownership.

But unions will stage a mass protest on Tuesday against the plans, which they say are "deeply unpopular".

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