UK - Soaring pension fund costs reduced the profit for Royal Mail by one third over the last year.

In line with expectations, the group announced £233m (€335.6m) in profits for the 2006/07 financial year - one third down from the previous year.

But pension costs increased from £193m to £722m, Royal Mail said in a statement.

The group last year agreed a recovery plan with pension fund trustees, including payments of £500m in additional contributions and £250m in 2007, to reduce the fund's deficit.

Royal Mail reached an agreement with unions last week over reforms to the pension scheme, after the announcement to close the final salary scheme led to strike action.

Unions and management have now agreed to close the existing defined benefit scheme to new members from 2008 and offer a defined contribution scheme.

Accrued benefits will remain calculated on a final salary basis. However, from April 2008 new contributions made by existing employees will go into a career average scheme.

The retirement age will also increase 60 to 65 from April 2010.

"We needed to reform our pension scheme because the costs were crippling the company," said Royal Mail chief executive Adam Crozier, commenting on the agreed reforms.

If you have any comments you would like to add to this or any other story, contact Barbara Ottawa on +44 (0)20 7261 4618 or email