Pension Dispute Looms at Royal Mail as Deficits Treble

The total final salary pension deficits of the UK’s 350 largest companies have trebled in a year, as Royal Mail, owner of one of the largest defined benefit (DB) schemes in the country, confirmed it had begun consulting staff on whether to close its fund to future accruals.

According to Mercer, deficits among FTSE 350 schemes stood at £39bn at the end of 2015, a figure that had risen to £137bn by the new year, despite an end-of-year stock market surge that ought to have boosted the value of investments. 

Separate research from JLT Employee Benefits show that FTSE 100 company schemes are now only 78 per cent funded – 10 percentage points below the level of a year ago.

Royal Mail said it now expects the cash cost of its plan to rise from £400m annually at present to £1bn by 2018 – a figure it suggested was unsustainable. Last year, the business said it only generated a net profit of £290m; its pension scheme has around 410,000 members and one of the highest funding levels (the level of assets versus liabilities) among large UK businesses.

Warnings about the continued health of its pension scheme were first raised by Royal Mail last summer.  Jon Millidge, described switching staff to a defined contribution option as the “best available” measure to ensure Royal Mail continued to provide “sustainable, good-quality pension benefits and as many high-quality jobs as possible”. 

The union representing Royal Mail staff has warned that removing the DB pension scheme after the consultation process ends in March could result in strikes.

Le Roy van Zyl, a senior consultant at Mercer, predicted that unease over the state of deficits in UK pension schemes was likely to increase in 2017: “Pension scheme trustees and sponsors face the new year with significant uncertainty. Brexit is likely to move beyond a mere intention, and the effect of new leadership in the US will become clear – not to mention other major events such as the French presidential elections.”


(Report sourced from People Management article – Peter Crush 6th Jan 2017)