21 June 2006
Royal Mail has struck a deal with pension fund trustees to clear
its £5.6bn pension deficit.
The Daily Telegraph reports that Royal Mail has struck a deal
with pension fund trustees to clear its £5.6bn pension
deficit. Under the terms of the deal, Royal Mail will pay up to
£750m annually for 17 years into the 450,000-member
scheme.
Annual contributions will go up from £480m last year to
about £750m this year and in future years. Of the 2005
figure, £340m was for normal pension contributions while
£140m went to narrow the deficit. This year, there will be
£500m in regular contributions and £250m for the
deficit.
While the agreement should create stability for its thousands of
current and past workers, it is not clear how Royal Mail will fund
it. The company's operating profits were just £355m last
year.
However, Royal Mail will be helped by the fact that the trustees
of the scheme have agreed the 17-year funding period, which is
longer than the 10 years that the pensions regulator, David
Norgrove, wants private companies to take to make good
deficits.
Another factor in its favour is that in May 2006 the Government
agreed to allow Royal Mail to release £850m of its reserves
to help offset the pension fund deficit.
