The questions no one is asking about the Royal Mail Pensions sell-off


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3:29 pm - September 17th 2013

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by Paddy Briggs

From time to time a good Pensions trustee should have an ‘emperor has no clothes’ moment. This is when there is something about which there seems a pretty solid agreement, often with the wraparound of ‘we’ve always done it like this’. Generally when you press you find that something is done the way it is because it is the best way.

But just occasionally a challenge will reveal an opportunity to change or improve established behaviours for the benefit of the Pension fund and its members.

I was pondering this recently when the news about the government’s decision on the Royal Mail Pension Plan began to emerge. This decision is that this fund, the third largest in the UK with assets under management of some £31 billion at the end of 2011, should be wound up and its assets be requisitioned by the Treasury.

I was so astonished about this that I wrote a letter to The Times expressing my surprise that the pensions world had been so sanguine about what seemed to be an extraordinary and unprecedented action, which I said was “almost Maxwellian in its audacity”.

The conventional wisdom about the Royal Mail Pension Plan decision is that it is in the interests of members. The interests of these members are protected, so the argument goes, because the fund’s members will become like most other public sector employees – their pensions will not be funded but will be a long-term charge on the treasury.

This is to the advantage of members because they go from the uncertainty of being in a fund whose funding ratio is a weak 76% to having their pensions guaranteed by government.

But what about those huge assets which employees, the sponsor and trustees have built up over the years? Surely it is the members’ money and only they have a right to it? It is not being set aside into a special pot to help provide for future pension payments – it is being sequestered to help reduce the UK’s budget deficit.

And is the transfer of members from a funded trust into the status of being an unfunded liability on the public finances really necessarily in their interests? Governments can and do change the basis of public sector pensions at their discretion and there is little that anyone can do to stop them.

A pensions trust provides legal protection to its members and has trustees to exercise that protective role. At a stroke Royal Mail fund members will lose that security and no longer have trustees acting in their interests.

Was there an alternative to the decision that the government has taken?

The Royal Mail is to be privatised and self-evidently no buyer would wish to assume sponsor responsibility for its £40 billion of liabilities. But could the funding ratio gap not have been closed partly out of the proceeds of privatisation and partly from the exchequer and the fund given an assured long-term future, as an independent pension entity, by such payments?

And why should the taxpayers of the future have to provide for the pensions of a further 430,000 people over and on top of the public sector pensions obligations they already have? These may be ‘emperor has no clothes’ types of questions – but they should be asked.


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Reader comments


About time this was raised. It’s been awfy quiet elsewhere.

“Surely it is the members’ money and only they have a right to it?”

No. It belongs to the trust. The trustees have a duty to protect members’ interests.

“”This is to the advantage of members because they go from the uncertainty of being in a fund whose funding ratio is a weak 76% to having their pensions guaranteed by government.”

Indeed. The trustees will have judged that such a move was in the members’ best interests. And given the funding position of the scheme it was hardly a difficult choice!

The alternative would have been to remain in a seriously underfunded scheme with no government guarantee.

The assets of the scheme have not been “sequestered”; this is simply nonsense. The government has effectively taken £76 in return for a guarantee worth £100. I assume you are not suggesting that the government should have offered the guarantee for free and (somehow – how exactly?) distributed the £76 to members?

PS though I do agree on the accounting sleight of hand, assuming the funding shortfall will be an off balance sheet liability?

“And why should the taxpayers of the future have to provide for the pensions of a further 430,000 people over and on top of the public sector pensions obligations they already have?”

I missed this daft question.
Taxpayers of the future have that liability (or £24 out of every £100 of it) already, via their current ownership of Royal Mail.
I assume you are not suggesting they should default on it?!

OP: “But could the funding ratio gap not have been closed partly out of the proceeds of privatisation and partly from the exchequer and the fund given an assured long-term future, as an independent pension entity, by such payments?”

Maybe. The pension trust disagreed.

Didn’t Bernie Madoff get jailed for this kind of thing?

@ Charlieman

OP: “But could the funding ratio gap not have been closed partly out of the proceeds of privatisation and partly from the exchequer and the fund given an assured long-term future, as an independent pension entity, by such payments?”

The privatisation is really meant as a cash injection for the business and modernisation of Royal mail. If all the money that comes from privatisation goes directly in to funding pension liabilities, the cash is not there to improve the business, which it desperately needs, and it makes Royal Mail near impossible to sell to the private sector given it’s current poor performance and massive liabilties.

it has been said that the massive pensions deficit was run up on purpose for exactly those reasons – it makes RM harder to privatise as no private venture would likely take on the scale of the pension shortfall without some form of government gaurantee, which many agitating for RM to stay public though would never be forthcoming.

@5 – no.

” … the cash is not there to improve the business, which it desperately needs …..

This cash is need for what, exactly?

THEY ARE TAKING IT AND KNOCKING IT OFF THE DEFICIT SO THAT THEY CAN LOOK AT THE NEXT ELECTIONS AND TRY TO CONVINCE US THAT THEIR AUSTERITY IS WORKING … IT IS WORKING….BUT ONLY FOR THE RICH

@6. Tyler: ‘The privatisation is really meant as a cash injection for the business and modernisation of Royal mail. If all the money that comes from privatisation goes directly in to funding pension liabilities, the cash is not there to improve the business, which it desperately needs, and it makes Royal Mail near impossible to sell to the private sector given it’s current poor performance and massive liabilties.”

Apologies for resurrecting a zombie thread.

But it is worth recalling that in the new world of internet trading and packages to the door, Royal Mail was in a great position to do it. For a start, Royal Mail knows better where doors exist than GPS does. And it has a corner shop where you can pick up an undelivered parcel.

Royal Mail conducted business with big sellers like Amazon, to streamline Amazon business. Somehow, Royal Mail did not comprehend its role in the process.

In 2003, Royal Mail picked Adam Crozier as Chief Executive. Royal Mail could not have done worse had it selected Adam Wankbat randomly from Wankbats listed on Facebat.

Royal Mail still has the capacity to be the UK business which shifts goods between buyer and seller. Adam Crozier/Wankbat did not understand the trade which was operating in front of his face. As long as there are Post Offices, there is opportunity.


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