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Transfer of Royal Mail pension fund assets to government 'dangerous'

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  • Transfer of Royal Mail pension fund assets to government 'dangerous'

UK - Plans by the UK government to use the Royal Mail Pension Plan's £28bn (€33.6bn) in assets to pay down the country's deficit have been attacked as "short-sighted and dangerous", with critics arguing the transfer will simply shift liabilities to a place "hidden" from government accounts.

The attack comes amid numerous reports hailing the transfer of the RMPP's funds - part of a proposal to make the UK postal service more attractive to outside investors as the government plans its privatisation - as a "windfall" for the Treasury.

The transfer, subject to approval from the European Commission due to state aid regulations, is hoped to go ahead at the beginning of next month, a UK Treasury spokeswoman told IPE.

According to the Commission's state aid register, a decision on the transfer has yet to be reached, with a spokeswoman only saying one would be announced "soon".

However, Professor Philip Booth of London's Cass Business School was critical of the move, branding it "short-sighted and dangerous".

"The assets will be used immediately to reduce the government's debt whilst the liabilities - made up of future pensions to workers - will no longer be funded and will have to be met by future generations of taxpayers," he said.

Booth noted that the liabilities would be hidden from the government's accounts, as state-funded pension shortfalls were not factored in as part of a country's deficit.

Opposition Labour MP Rachel Reeves, shadow chief secretary to the Treasury, meanwhile called the use of scheme assets to pay down the national debt "accounting trickery", saying people would not be fooled into thinking it was good news for taxpayers.

The Treasury spokeswoman said that, while it would appear to be a "trade beneficial to government finances", it was taking on liabilities in excess of those assets.

However, she noted that, as the liabilities were contingent liabilities, they would only be disclosed in the Whole of Government Accounts - a new report first published last year that estimated the UK had £1.2trn in public sector pension liabilities.

Booth further voiced criticism about the level of disclosed deficit in the Royal Mail scheme.

"According to the government's own figures, the liabilities are £10bn greater than the assets, which stand at £28bn," he said.

"However, if valued properly, the liabilities would probably be well over £20bn more than the assets.

"Government accounts will show a reduction in the government's national debt of £28bn whereas, in reality, the national debt will be increasing by over £20bn."

The Department for Business, Innovation and Skills, which is responsible for postal services, last year appointed Inalytics to advise on the use of transition managers as the fund was liquidated.

A spokesman today declined to name any of the appointed transition managers, only saying that that an announcement would be made shortly.

As of its most recent annual report from March last year, RMPP held assets of £27.7bn, with the 2009 triennial valuation estimating a deficit in excess of £10bn.

However, the combination of an increase in assets and a reduction in liabilities as a result of the switch to the consumer prices index has since seen a significant fall in the deficit, with Royal Mail Group's latest half-yearly figures estimating a £4.6bn shortfall.

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