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IPE special report May 2018

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Capita wins admin contract for £47bn Royal Mail scheme

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Capita Employee Benefits has been awarded a contract to run the administration for £47bn worth of pension benefits connected to the Royal Mail.

The contract relates to the Royal Mail Statutory Pension Scheme, which consists of liabilities taken on by the UK government as part of the privatisation of Royal Mail in 2012.

It was put up for tender at the end of 2016. Four groups bid for the business, with Capita now set to take over full responsibility for administration and related activities.

According to government documents, Capita will be paid £31m for the eight-year deal, equating to £3.9m a year.

The government spent an average of £5.2m a year on administration costs for the scheme since 2013, according to Cabinet Office financial reports for the past four financial years. This implies that the new arrangement could save the government more than £1m a year.

While the government’s Cabinet Office has formal responsibility for the pre-2012 liabilities, Royal Mail’s Pension Service Centre (PSC) retained responsibility for administering the benefits of roughly 402,000 people who accrued pension rights before 31 March 2012.

The PSC also runs the administration for the £9.8bn Royal Mail Pension Plan (RMPP), which is sponsored by the listed company. The group’s defined contribution scheme is run by Zurich.

The contract award notice stated that Capita would work with PSC to cater for the roughly 116,000 people with benefits in both schemes.

The change comes amid significant activity at the RMPP. It is locked in heated negotiations with unions about the future structure of the scheme, with one workers’ group having threatened strike action over a plan to close the current defined benefit scheme to future accrual.

Royal Mail has estimated that RMPP would have exhausted its existing surplus by next year.

The statutory scheme is unaffected by the RMPP negotiations.

In August it emerged that Chris Hogg, CEO of Royal Mail Pension Trustees and a key figure in the restructuring of the scheme during privatisation, was to leave, taking on the CEO role at National Grid’s £16.6bn pension scheme. His departure date has yet to be confirmed.

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  • Royal Mail to close DB scheme in 2018

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