Royal Mail discovers £4bn pension fund hole

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Royal Mail discovers £4bn pension fund hole

By Terry Macalister
The Guardian, May 12, 2003

A £4bn pension hole has been uncovered at Royal Mail which will alarm staff and government while forcing the cash-strapped management to consider pumping huge amounts into its retirement scheme.

The problem will be revealed as early as next week on publication of its annual accounts and takes the gloss off a significant improvement in the state-owned company's overall financial position.

The post office group is likely to report an operating loss of about £230m for 2002-03 - the first 12 months of a three-year recovery plan - compared with a £350m deficit in 2001-02.

The black hole, one of the biggest ever revealed in a British business, has to be declared because of recent FRS17 accounting rules.

The group declined to talk yesterday about its pension and financial position, saying it would discuss these issues with its 200,000 staff before making any details public.

But industry sources insisted that Royal Mail, which is chaired by former Asda boss Allan Leighton, was not likely to be surprised by the scale of its pension liabilities.

"The details you get from FRS17 are just a snapshot and they were obtained at the end of March when the company's financial year ended and when the stock market was at a particularly low ebb," one source said.

"The Royal Mail is currently in the middle of a proper actuarial review of its pension lia bilities which it undertakes every three years. The results of that review should be known in the autumn and give a much better view of the real liabilities faced."

But if the scale of the deficit is confirmed it could force Royal Mail to start pumping in up to £2bn over the next decade into the £15bn scheme.

Meanwhile, Mr Leighton will argue that his restructuring plan is beginning to pay off.

Much of the improvement can be attributed to a considerable reduction in costs, not least the impact of 15,000 staff leaving over the past 12 months.

Royal Mail has also benefited from rejigging its Parcelforce business, closing almost half of the previous total of 100 depots.

The overall daily losses might have dropped below the £1m a day but the speed of the turnaround is being delayed by negotiations with the unions over the introduction of a single mail delivery.