Government goes postal with Royal Mail pension scheme

The Government will take on the £28bn of assets (and £37.5bn of liabilities) tied up in the Royal Mail's pension scheme.

by Emma Haslett
Last Updated: 06 Nov 2012
The Government has announced plans to take control of Royal Mail’s beleaguered pension scheme – by the end of next month, if things go to plan. The pension scheme is one of the most expensive running jokes in British business: at last count, its deficit was estimated to be worth £4.6bn. The idea is presumably that removing the pension scheme will pave the way for a nice, easy sale of Royal Mail. Although the Government’s keeping schtum on the matter…

In theory, taking control of the pension should actually help to reduce the national deficit. It’s complicated stuff, but once it’s been taken on by the Government, the pension will be treated in the same way as those of the NHS or armed forces. So its £28bn in assets (about 2% of GDP) will represent an immediate windfall to the Budget, while its £37.5bn in liabilities will only show up over the next 30-odd years. So it’s win-win. The unions certainly think so: they have been campaigning for this for years

Put like that, you can see why buyers haven’t been falling over themselves to take on the Royal Mail. Things that seem too good to be true usually are. That £37.5bn is an estimated figure – the figure could be a lot higher (and paid over a lot longer period) if people’s life expectancies rise dramatically over the next few years. So the liabilities could end up outweighing the assets even more than they already do. It’s possible that changes to wider public sector pensions rules could reduce those liabilities – but that would be pretty controversial.

Still, at least without the albatross of those pension liabilities hanging around its neck, the way has been paved for a sale of the company. The Government presumably has a certain sense of urgency about the matter: after all, the legislation to privatize the postal operator was cleared last year – but things were held up by pensions issues. That, and its rather disappointing profit figures – although things seem to be improving slightly: in September, it announced half-year operating profits of £67m, up from an unimpressive £22m the year before.

The transfer is still subject to approval from the European Commission, but the Government hopes it can rush it through by the end of next month. Which means Royal Mail plc isn’t far off.

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