Postal Services Bill

Memorandum submitted by The Trustee of Royal Mail Pension Plan (PS 05)

1 Background

The Royal Mail Pension Plan began in October 1969 as the Post Office Staff Superannuation Scheme, when the General Post Office ceased to be a Government Department and became a public corporation. In 1983 the Scheme was split into two separate schemes, one for BT and one for Post Office. A new scheme, the Post Office Pension Scheme, was created for employees who joined the organisation from 1987 onwards. The two schemes were merged into the Royal Mail Pension Plan in 2000. The Plan is one of the largest in the country with 436,991 members and assets valued at £26.0 billion as at 31 March 2010.

2 The Trustee

Royal Mail Pensions Trustees Ltd acts as Trustee to the Plan. It has a Board of eleven Trustee Directors; five nominated by members, five nominated by the employer together with an independent Chair.

3 Key Facts

The following key facts may be of interest to members of the Committee:

· As at 31 March 2009, which was the date of the most recent formal actuarial valuation, the assets stood at £20.2 billion whilst the liabilities (the present value of the members’ rights built up to date, known as the Technical Provisions) stood at £30.5 billion.

· The funding deficit was £10.3 billion as at 31 March 2009 (assets of £20.2 billion less liabilities of £30.5 billion).

· As at 31 March 2010, which was the date of the most recent annual funding update, the assets stood at £26.0 billion whilst the liabilities (the present value of the members’ rights built up to date) were estimated to be £34.4 billion.

· The funding deficit was £8.4 billion as at 31 March 2010 (assets of £26.0 billion less liabilities of £34.4 billion).

· The annual Royal Mail deficit recovery contribution agreed following the 2009 formal valuation is £282 million, increasing in line with inflation, with an additional amount payable of 4% of pensionable salary roll during the period 2013 to 2023. This is expected to extinguish the 31 March 2009 funding deficit by 2047 (i.e. over the Recovery Plan period of 38 years).

· The Royal Mail future service contribution has been agreed as 17.1% of pensionable salaries of employee members as part of the 2009 valuation, which currently equates to c. £450 million per annum.

· The Plan is by far the largest single creditor of Royal Mail.

4 View on the Postal Services Bill

The Trustee supports the pensions solution included in the Postal Services Bill on the basis that Government intends:

· Members’ benefits will not be adversely affected by the transfer of some benefits to a new public service pension scheme. Indeed, the Government has stated in Parliament that "the Bill will ensure that all the benefits that employees have earned will be safeguarded" (It is important to be clear that employees here refers to both past and present employees);

· The benefits transferred to a new public service pension scheme will be protected from future amendment in the same way as they are currently protected under the Plan;

· The Government will provide financial security for the benefits transferred to a new public service pension scheme; and

· The Plan will be fully funded at the point of the transfer of liabilities in respect of the employee members’ benefits it retains.

The Trustee is solely concerned with the part of the Bill relating to the pensions solution. In all other respects it is agnostic about the Bill.

November 2010