UK - The UK government has confirmed it will take responsibility for around £29.5bn (€33.1bn) in pension liabilities of the Royal Mail Pension Plan (RMPP) and leave the scheme with "sufficient assets" to meet its remaining liabilities, though this will not be on a fully-funded basis.

An amended version of the Postal Services Bill is now waiting to be heard at the report stage of the parliamentary process on 11 May, after the House of Lords committee stage concluded its line-by-line examination of the regulation earlier this week.

The Bill allows the government to take responsibility for the growing deficit in the RMPP, last estimated to be £5.9bn, and allows a "strategic partner" to take a 30% stake in Royal Mail to improve efficiency and costs. (See earlier IPE article: Royal Mail Pension may become new public scheme)

In the final stages of the committee debates, which began on 24 March 2009, Lord McKenzie, parliamentary under-secretary at the Department for Work and Pensions (DWP), last week confirmed the Bill would result in the government underwriting the accrued rights "as well as scaling down the scheme for RMPP going forward, which should make it much more viable".

Royal Mail currently operates three schemes - the RMPP, an executive scheme and a defined contribution (DC) scheme for new entrants - but the legislation will only impact existing members of the RMPP.

He told the House of Lords around £29.5bn of existing RMPP pensioner liabilities will be transferred to the new public pay-as-you-go scheme, and to "partially offset that cost to taxpayers" he confirmed £23.5bn of the pension funds assets - equivalent to around 80% of the liabilities taken on by the government - will also be transferred.

Any gilts will go to the Debt Management Office, cash will go to the Consolidated Fund and other types of assets will be placed in a special fund established by the secretary of state before being "sold over a number of years, with proceeds going to the Consolidated Fund".

Lord McKenzie stressed "the government is not interested in a fire sale of any assets" and after acknowledging the importance of transparency admitted it is "currently considering the various options for how best to achieve this, including that of setting out a disinvestment strategy, but that is just under consideration".

Following this transfer of assets, Lord McKenzie claimed the RMPP would be left with "sufficient assets to meet its liabilities, currently estimated by the government to be £3bn", and the mix of assets left with the RMPP - currently comprising equities, gilts, properties, bonds and cash - would be the subject of discussions with the trustees and actuaries.

However, Lord McKenzie rejected an amendment to the Bill for the assets left with the RMPP to be equivalent to full funding on a buyout basis, and instead argued the new legislation places Royal Mail and the scheme in a "significantly improved position" so it would be "perverse to argue the trustees somehow need full funding on a buyout basis to protect members going forward".

He told Peers the government "will work with the trustees to find an appropriate valuation basis that delivers value for money without putting members' accrued benefits at risk" and confirmed the details of this valuation will be outlined in secondary legislation.

Lord McKenzie claimed: "Funding on a buyout basis could involve a large cost to government and the taxpayer but provide members with little extra protection. It would also provide an incentive for the company to wind up the scheme, which the government have no intention of doing."

"The pension proposals, including the value of assets left with the RMPP, will require state aid approval. That is why it is not appropriate to include a requirement on the funding basis in the Bill," he added.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com
 

Topics