Trustees' letter in full

Letter from Jane Newell, Chairman, Royal Mail Pensions Trustees to Business Secretary Lord Mandelson:

Further to our meeting of 13th February, perhaps I could confirm the Trustee's views in respect of the Hooper Report, in so far as it affects the Royal Mail Pension Plan.

Let me reiterate the Trustee's position. The Trustee has a fiduciary duty to protect the benefits of the 450,000 members of the Royal Mail Pension Plan. The Trustee's prime concerns, therefore, are security of members' benefits and the strength of the covenant of the plan sponsor.

As you know, Royal Mail's position is weak in respect of its covenant and there is a significant pension fund deficit, which is a long-term drain on the company's cash. Royal Mail is already balance sheet insolvent.

If the recommendations of the Hooper Report were not implemented, the consequences could be very severe indeed for the Royal Mail Pension Plan and for Royal Mail itself.

In particular, in light of the weakness of Royal Mail, the Trustee would consider it necessary to seek to significantly strengthen the funding basis for the 2009 actuarial valuation.

On a self-sufficient basis this would value the liabilities far higher, resulting in a deficit that would be significantly larger than the £5.9bn quoted in the Hooper Review, which is on the existing ongoing basis. The law gives the Trustee and Royal Mail until 30 June 2010 to agree this valuation.

Whatever its precise amount, the deficit resulting from a strengthened funding basis for the 2009 valuation is highly unlikely to be affordable by Royal Mail, with potentially devastating consequences.

If this were the case, the Plan's financial resources would not be sufficient to provide the full value of benefits, which would need to be very significantly reduced.

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

In theory the Pension Protection Fund would act as a safety net for members, but I would not like to speculate on its ability in practice to absorb the Plan without putting an intolerable levy strain on remaining UK pension schemes.

Consequently, the Trustee of the Royal Mail Pension Plan, subject to obtaining satisfactory guarantees from Government, is in favour of the Hooper Report's recommendations. We very much look forward to these being implemented, as soon as possible, for the benefit of all concerned.