'Shock' at Royal Mail pension plan

12 April 2012

The Royal Mail has announced plans to close its final salary pension scheme to new entrants after revealing that its pensions deficit had grown to £6.6 billion.

The figure, believed to be the biggest of any UK organisation, has grown by £1 billion in the past year, with huge servicing costs helping to cut the postal group's interim profits by 86% in the first six months of the financial year.

Union leaders expressed anger at the plan to close the final salary scheme to new workers, which they said had come as a "complete shock".

The profit figure fell to £22 million between April and September compared with £159 million in the same period a year earlier.

Servicing costs for the pension scheme, which has almost 170,000 active members, 174,000 pensioners and 105,000 deferred members, increased by £280 million to £730 million in the past year.

Royal Mail chief executive Adam Crozier said it was important to safeguard the future of the fund, adding: "The £730 million annual cost of servicing the pension fund clearly damages our competitiveness as we need to increase the price of our products and services to pay for it.

"Around 93% of our mail volumes come from business customers and they should not have to pay for the increased cost of our pensions - and if we ask them to do so, more of them will simply go to the competition.

"So to ensure the problem does not get worse for the company or our pension fund members, we will now begin a six-month consultation on replacing the final salary pension scheme for new recruits with a defined contributions scheme, and on the best way to safeguard an affordable final salary scheme for our existing employees."

The Royal Mail also unveiled plans to give "phantom" shares to its workers which it said was expected to be worth £5,300 per employee over five years, depending on performance.

Under the terms of the scheme, which will be similar to one run by the John Lewis Partnership, about a fifth of the value of Royal Mail will be earmarked for workers and up to £1 billion could be redistributed if modernisation targets are met.

Create a FREE account to continue reading

eros

Registration is a free and easy way to support our journalism.

Join our community where you can: comment on stories; sign up to newsletters; enter competitions and access content on our app.

Your email address

Must be at least 6 characters, include an upper and lower case character and a number

You must be at least 18 years old to create an account

* Required fields

Already have an account? SIGN IN

By clicking Create Account you confirm that your data has been entered correctly and you have read and agree to our Terms of use , Cookie policy and Privacy policy .

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged in