UK - The new coalition government in the UK has confirmed it will continue with existing plans for incoming auto-enrolment regulations, while its intentions to part-privatise Royal Mail has raised questions over the future of the organisation’s pension deficit.



In its latest document The Coalition: Our Programme for Government, the Conservative-Liberal Democrat administration has set out its plans on a range of issues over the next five years, including the confirmation that it wouldl continue with auto-enrolment plans initiated under the previous Labour government, and that it would seek to simplify existing occupational pension rules to “invigorate” pension saving.

The report reiterates the pledges in the government’s initial agreement, including an independent commission to review public sector pensions and the reinstatement of the link between earnings and the basic state pension from April 2011, along with a ‘triple guarantee’. (See earlier IPE article: Iain Duncan Smith appointed UK pensions secretary)

However, the report did not mention the National Employment Savings Trust (NEST), the national scheme devised by the previous government, which from 2012 will begin providing pension savings to all UK workers who are without existing occupational pension arrangements.

The report only stated: “We will simplify the rules and regulations relating to pensions to help reinvigorate occupational pensions, encouraging companies to offer high-quality pensions to all employees, and we will work with business and the industry to support auto-enrolment”.



The agreement between the Conservatives and Liberal Democrats also confirmed the default retirement age would be phased out and a review would take place on increasing the state pension age to 66, while compulsory annuitisation at age 75 would end.

The government also plans to explore the potential to provide people with greater flexibility in accessing “part of their personal pension fund early”, the report said.

The government also revealed it intends to restart plans to part-privatise the national postal service Royal Mail, prompting questions over whether the state would underwrite the organisation’s pension deficit estimated at £10bn (€11.6bn).

The government stated one of its business objectives would be to “seek to ensure an injection of private capital into Royal Mail, including opportunities for employee ownership. We will retain Post Office Ltd in public ownership”.

It is unclear how this private capital injection would affect the pension fund, which is expected to see the last actuarial deficit of £3.4bn in 2006 triple to around £10bn once the valuation for March 2009 is completed. (See earlier IPE articles: UK roundup - Royal Mail, Wandsworth, Oxford and Powys and Royal Mail deficit payments could near £1bn)

A spokesman for the Department of Business, Innovation and Skills (BIS), said that further details on the plan expanding on the statement in the coalition agreement “would be revealed in due course”.

The previous Labour government had tried to initiate a part-privatisation deal for the company, which would have led to the establishment of a new pension scheme and the transfer of the existing liabilities to the government to allow Royal Mail a fresh start. However industrial action by Royal Mail employees, and a failure to find a willing buyer meant the Postal Services Bill was withdrawn last year. (See earlier IPE article: BIS rejects ‘Royal Mail sale is dead’ claim)

The announcement coincided with the publication of Royal Mail’s latest figures showing it had paid £867m into the pension scheme, of which £291m was towards the historic deficit.

Royal Mail said: “The group and the trustees have worked hard to find a solution to the problem of the actuarial deficit - which is expected to be significantly higher than the previous figure of £3.4bn when the current valuation is completed - and they continue to do so.”

It added that the withdrawal of the Postal Service Bill last year “means that the three major issues it highlighted - the need for regulation that reflects the changing market Royal Mail operates in, the need for a resolution to the historic pension deficit, and the need for more flexible access to capital - have yet to be resolved”.

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