Royal Mail pension liabilities to be shouldered by the taxpayer soared by £8.5bn over the last year, the government revealed yesterday.
The exchequer is now responsible for future postal worker retirement payments totalling £46.8bn, according to financial statements dated 31 March 2017.
The taxpayer inherited responsibility for pre-2012 benefits paid into Royal Mail’s pension fund as part of the postal giant’s privatisation in 2013. Benefits accrued thereafter are the responsibility of a separate scheme run by FTSE 100 firm Royal Mail itself.
The government scheme’s increase compares with a recently announced £9bn rise in the Universities Superannuation Scheme, a hike that took its deficit to a UK-high of £17bn.
Because it is a closed scheme, only liabilities are disclosed, with the government funding them via a pool of assets.
The cost of actual payouts to postal workers totalled £1.36bn over the year, broadly in line with prior year.
Meanwhile, the post-2013 Royal Mail scheme currently boasts one of the highest surplus’ in the FTSE 100 according to a report by actuaries from LCP earlier this month. This is because it started from scratch in 2012 and was not lumbered those historical liabilities left in the government fund.
Despite appearances, Royal Mail’s scheme is struggling. It is eating through its surplus at a rate of £1.3bn a year. By next year it expects its fund to be in deficit; this is the reason Royal Mail is planning to shut its scheme in March 2018.
Royal Mail’s main trade union, the Communication Workers’ Union (CWU) has pledged to challenge the closure. Its counter-proposals have to date not been accepted by Royal Mail, meaning industrial action is a growing possibility. It is understood that if a deal cannot be reached by August, the CWU will ballot its members for strikes.
Independent pensions expert John Ralfe said news of today’s increase in the pre-2013 liabilities was “due to the large drop in long term interest rates, which has hit all defined benefit pension schemes”.
The cabinet office and Royal Mail declined to comment.