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Royal Mail: Pensions burden

Robert Peston | 12:51 UK time, Thursday, 8 February 2007

For ministers, the Royal Mail is a kind of giant testing ground for their intermittently bold plans to reconstruct the public sector.

Ministers were particularly impressed three or four years ago when Royal Mail reduced its workforce by some tens of thousands - which fired up the determination of the Treasury to reduce headcounts and costs elsewhere in the public sector, though so far without notable success.

So the big news today is that Royal Mail is closing its generous final salary scheme to new members and looking to reconfigure the scheme in a way that reduces its financial burden on the company. Difficult to see how that can be done without reducing the benefits it gives 170,000 working members - or perhaps increasing the costs for them.

As Allan Leighton, Royal Mail's chairman, said to me this morning, this is big stuff. But It's probably unavoidable when the company feels its long term viability is threatened by the £730m annual cost of servicing the fund.

It is conspicuous that Leighton has received backing from Alistair Darling, the trade and industry secretary, for these proposals. So a chill will be sent through the rest of the public sector, where pensions are conspicuously more generous than what's generally available in the private sector.

Comments   Post your comment

  • 1.
  • At 04:19 PM on 08 Feb 2007,
  • Kenneth Lockwood wrote:

Royal Mail Pension in Crisis
Lets set things straight :
1. Royal Mail is and always has been owned by the people and run on behalf of its one and only shareholder the Government of the UK.
2. When, as so many 'owners' of businesses took a 'pension holiday', the Government thus received more 'profit'.
3. The latest Government, New Labour, has made things much worse by extracting wealth from pensions generally through Mr Browns raid on Pension Funds.
4. This New Labour thought to have our Royal Mail & Post Office suffer further by having us face deregulation before any other European Countries thus forcing revenue to be cut.
5. They even caused RM/Post Office to lose perhaps a billion pounds by first backing then backing out of elaborate schemes to pay pensions and benefits through a computerised system.
6. They are now even taking their own postal business away and giving it to competitors.
7. This and all previous governments have shied away from giving Royal Mail the Capital it needed to build for the future.
8. The Royal Mail Pension fund, and perhaps many others should be taking these charlatons to court for their failures.
9. It is almost sickening to know that MPs Pensions are better funded, better protected, and that these nairdowells will never have to worry about their Retirements like the rest of us.

Ken Lockwood
RM Pensioner

  • 2.
  • At 04:23 PM on 08 Feb 2007,
  • Stephen Barnes wrote:

I have worked for Royal Mail for 34 years and this lot of managers are the least trustworthy lot I have seen. I don't trust them to run the business let alone look after my pension.

When Allan Leighton was foisted upon us he said "I want to make this a great place to work". The truth is the morale is now the lowest that it has ever been and the staff can't wait for him and his F.A. side-kick to go. Simply making cuts all the time isn't going to turn the business around. They have this week annouced that they are going to stop the suppy of uniforms until the next financial year. Taking the shirts from the backs of staff to stuff into the pension hole is too little too late.

What the business now is a new broom that will work with the staff instead of against them. Perhaps the new man at the top willl be called Wilberforce so that he can end the slavery in Royal Mail. We have postmen being made to do one walk of 3.5 hours and then ordered out to do another.

  • 3.
  • At 04:24 PM on 08 Feb 2007,
  • stephen moss wrote:

The only thing that will be for sure,is that whilst the staff are loosing out . The pension and bonus arragements for those in charge will reach offensive and immoral heights.

  • 4.
  • At 04:31 PM on 08 Feb 2007,
  • Stuart Edwards wrote:

Better to close pension schemes new applicants as they know what they are signing upto. Those who have already paid into schemes do need protection from retrospective "goal post moving"

  • 5.
  • At 04:45 PM on 08 Feb 2007,
  • Cumming G L wrote:

Here we go again, "generous final salary scheme": the drones in the public sector versus the plucky, valiant, wealth creating Stakhanovites of the private sector. It is made to seem that the latter retire on £3 a week pension after a lifetime of backbreaking toil, whereas the former get 8 times their working salary.
If your final salary as a postman or a nurse is £20,000 AND you have worked for 40 years, you'll get about £10,000 per annum (subtract a few quid for tax). I should like to know what the nation's "top" business men get as a pension: I should also be very interested to know what the media types get. Do the Naughtys and the Marrs and the Humphrys and the Paxmans get half their final salary? Are they on median UK salary (about £25,000, I think)? Let's start talking openly and honestly about pensions; let's start using numbers instead of feeble adjectives like "modest" or "generous" or "unaffordable". After all, as Marx used to say, "ignorance is no help to anyone".

  • 6.
  • At 05:01 PM on 08 Feb 2007,
  • Steve Jones wrote:

> Here we go again, "generous final salary
> scheme": the drones in the public sector
> versus the plucky, valiant, wealth creating
> Stakhanovites of the private sector.

I know! This Peston fellow is a right 'un! A
proper unreconstructed Thatcherite, if you
ask me.

This is a BBC site, and the BBC has a similar
status to the Post Office, as a Crown
Corporation. I wonder what the journos down
there pull out of the public purse!


  • 7.
  • At 05:02 PM on 08 Feb 2007,
  • Nigel Heaton wrote:

It really is about time that Royal Mail faced up to this problem. Without addressing the cost of providing pensions, they will never be able to compete in the new market they find themselves in. Compare it to the problems BA has in competing with low cost airlines - each BA ticket price has to include a loading of about £45 to cover the company’s final salary pensions costs, whilst newer companies such as easy Jet and Ryan Air have no such worries.

However, what really must be frustrating for those working at RM is that it appears that politicians at the DTI are happily supporting the reforms safe in the knowledge that ministers and MPs don't have to worry about their own super-pensions.

  • 8.
  • At 05:33 PM on 08 Feb 2007,
  • Mike Sheridan wrote:

Oh how I would love to be in a postion to have a pension of half-salary!

That £10,000 pension is equivalent to a capital sum of £200,000. Now calculate that out for each past, present and future postman or postmistress and you can see where the problem lies.

It is unsustainable - just as all of the public sector pensions are unsustainable UNLESS the recipients pay the economic price during their working lives.

  • 9.
  • At 05:53 PM on 08 Feb 2007,
  • D. A. James wrote:

This is a problem engineered by the Government and the Post Office management to break public sector pensions schemes.
People who lose or have their pensions cut will, in the long term, be forced to fall back on state aid and thus the tax payer. So these pensions cuts and the Governments failure to stop them is a faulse saving other then for share holders.
In the event of a company failure the law should make the companies own pensioners the first in line on the creditors list. That would have the added advantage of making the banks and lenders think twice before stopping funds. Also directors own finances should be open to sequestration so that they do not benefit from their own failings.

  • 10.
  • At 05:56 PM on 08 Feb 2007,
  • martin roach wrote:

It's a sad fact but final salary schemes are not affordable. A £20k salary after 40 years is said by one emailer to lead to a £10k pension (likly index linked - a major benefit assuming 20 odd years of retirement). In fact a typical public services scheme says each year of working contributing 1/60th of end salary to pension so it will be nearer £14k. At 6% typical yield this requires a pot of £230k to fund. How many private sector workers will have built up such a pot from their money purchase pension?

But the public/private pension gripe is not against low paid workers. Rather the inequity of the two types of scheme which particularly benefits higher paid public sector workers and are paid for through taxes.

What is required is similar schemes and only money purchase (not final salary) schemes with around 15% funding per year can be afforded

  • 11.
  • At 06:33 PM on 08 Feb 2007,
  • Youngmangonewest wrote:

It's painful to have to close such a generous scheme to new members. But it's that or renege on the pension promises made to existing members and pensioners. At least new members will know what they're signing uo to. Running RM is a tough job. Stop bashing Leighton in a simplistic us-and-them fashion.

  • 12.
  • At 06:58 PM on 08 Feb 2007,
  • Mike Keohane wrote:

Interesting that Royal Mail say that they wish to reduce the costs of their pension scheme.
By closing the scheme to new members their cost of funding the scheme will in fact rise over the next few years. The reason for this is that they won't receive any contributions to the scheme from their new members of staff who will no doubt be paying in to a separate defined contribution scheme.

  • 13.
  • At 07:04 PM on 08 Feb 2007,
  • Mike Keohane wrote:

Interesting that Royal Mail say that they wish to reduce the costs of their pension scheme.
By closing the scheme to new members their cost of funding the scheme will in fact rise over the next few years. The reason for this is that they won't receive any contributions to the scheme from their new members of staff who will no doubt be paying in to a separate defined contribution scheme.

  • 14.
  • At 07:06 PM on 08 Feb 2007,
  • David Archer wrote:

I have worked for the Royal Mail for nearly 19 years and never has the morale been so low, in fact it is non-existant. This sham of a Government is deliberately running down this business so that it can throw it to the dogs in a few years. Nobody cares anymore, The management don't care, the Government don't care, the customers don't care, businesses don't care and increasingly day by day the fed up postman don't care. There is no future.

  • 15.
  • At 07:51 PM on 08 Feb 2007,
  • Roger Bennett wrote:

So lets get this right, Royal Mail/Goverment rob the pension fund and carry on robbing it when everyone knows funds were starting to under perform but its the Postmen who have to suffer???

  • 16.
  • At 08:35 PM on 08 Feb 2007,
  • glenn wrote:

you seem to be missing the point with regard to other public sector workers - there is no pension fund! it all comes out of future taxation!

the unfairness of pensions is amazing. the private sector MUST contribute to schemes that govt bodies approve but if they go belly up then tough - no compensation! my equitable life fund is really valuable!

BUT HEY! join the fire or police and work 20 years and you have a pension worth in excess of £500k if you had to buy the annuity and there is no funding for it as it comes out of future taxation! who are the mugs!!?

  • 17.
  • At 08:38 PM on 08 Feb 2007,
  • glenn wrote:

you seem to be missing the point with regard to other public sector workers - there is no pension fund! it all comes out of future taxation!

the unfairness of pensions is amazing. the private sector MUST contribute to schemes that govt bodies approve but if they go belly up then tough - no compensation! my equitable life fund is really valuable!

BUT HEY! join the fire or police (or any other public body) and work 20 years and you have a pension worth in excess of £500k if you had to buy the annuity and there is no funding for it as it comes out of future taxation! who are the mugs!!?

  • 18.
  • At 08:51 PM on 08 Feb 2007,
  • Paul Morris wrote:

If Stephen Barnes hates Royal Mail so much why does he continue to work for them? No-one has a gun to his head forcing him to do it. As for talking about "slavery", what rubbish! Again, if he thinks it's so awful why does he continue to work for them?

  • 19.
  • At 12:03 AM on 09 Feb 2007,
  • Paul wrote:

The government allowed Royal Mail to take a pensions "holiday" boosting the profits which the government gladly took.Now Royal Mail can't afford to pay for this "holiday" and who pays ,the government no,the postmen.Basically the government has robbed them.It would be great if the postmen could take a tax "holiday"

  • 20.
  • At 09:51 AM on 09 Feb 2007,
  • Ron Baber wrote:

I have to agree with Ken Lockwood, this pension "black hole" is of the governments making but it is the workforce past, present and future, who will suffer. The main cause of the problem is that "the business" took a break from making their contributions during the boom years of the 80's. The "business" i.e. the government gladly (or should that be greedily?) took the money without a second thought about the possible knock-on effect 20 or 30 years later. Our Chancellor continues to add to the pension burden by extracting significant amounts of money every year from pension funds while encouraging us all to "save for our future". My request to Gordon Brown / Tony Blair et al is simple, you, as the current encumbents of Downing St& Wesrtminster, have a responsibility to the people of this country - start accepting that responsibility.

  • 21.
  • At 09:57 AM on 09 Feb 2007,
  • brian leek wrote:

it is not the pension scheme that is the burden to royal mail but the over paid top manages who cream profits off. crosier alone earns in excess of £1 million pound a year.we now have company boss's dictating government policy.lieghton should go now

  • 22.
  • At 10:07 AM on 09 Feb 2007,
  • N Smith wrote:

This is an interesting development. Competition in this sector has brought new players in the market, who tend to offer an employment proposition based on low base salaries and very few additional benefits - they can do so because all their employees are 'new' and are fully aware of the position. Only with such a headcount budget can they hope to compete and take a slice of the market - which of course they are doing very successfully.
This news is taking Royal Mail into the same territory. RM has always gone to great pains to differentiate its employment proposition on the benefits which are additional to base salary. Those are now being eroded to such an extent that it is difficult to see why people looking at new employment options would choose RM over other organisations. A sad state of affairs and I am not convinced that the longer-term impact of this has been considered.

  • 23.
  • At 10:45 AM on 09 Feb 2007,
  • John Nally wrote:

If they hadn't retired thousands of staff prematurely and paid them six and two thirds enhancement on their pension we would be alright. This meant thousands got paid a pension for which they didn't contribute. Along with the pension holiday which was immoral this has now come back to haunt us.

  • 24.
  • At 11:51 AM on 09 Feb 2007,
  • Guy Moody wrote:

I was one of the cull "victims" a few years ago. Too young for a pension I've been forced out into the nasty real world - and it's a lot nastier than Royal Mail believe me.

My older age income hangs on my preserved pension from Royal Mail and I'd really like to see some reassurances that my interests will be well looked after. I do not want to spend the next ten years biting my fingernails.

  • 25.
  • At 12:02 PM on 09 Feb 2007,
  • D Luxon wrote:

Stephen Barnes comments that the Post Office is in a state of slavery because Postmen have to do 2 X 3.5 hour delivery rounds some days.

No I may be missing something but if you are employed as a Postman what else would you be doing for the remainder of your working day if not delivering post?

Doesnt this sum up the attitude that is wrong with the RM today...when working afull day is compared to slavery?

  • 26.
  • At 01:15 PM on 09 Feb 2007,
  • Martin Cole wrote:

These reports are not really correct in the 1990's RM introduced a money purchase scheme for new employees and closed the final salary scheme. Then some years later during pay negoitations it achieved a successful outcome to negotiations with the Communications Union by agreeing to open up final salary scheme. Note at the same time using the then large surplus on the final salary scheme to cover a deficient on the money purchase scheme. The deficient would have been met by RM or increased contribution from employees.The union agreed to robbing Peter to pay Paul hardly the moral high ground

  • 27.
  • At 01:19 PM on 09 Feb 2007,
  • Leslie John Spencer wrote:

'Generous' final salary scheme. It may look like it for someone who doesn't have a pension but generous perhaps not. I worked for Royal Mail for close on 40 years. For most of that time I had to accept low wages which were supplemented by excessive hours of over time. I bet my pension is no where near the settlement Allan Leighton and his side kick will get when they shuffle off to ruin other companies. This government is not blameless either. Royal Mail had a healthy pension surplus some years ago which has been eroded and plundered by this government. Please don't think that everyone in the public sector is on mega bucks, I can assure you they are not.

  • 28.
  • At 01:27 PM on 09 Feb 2007,
  • Mike wrote:

Here's a few questions that need to be answered - perhaps something for a good journalist to get stuck into!

1. I thought the the pension hole was £5B some 4 yrs ago, now it's £6B? How come it's growing when the markets are recovering and there was a report last week that these pension holes were reducing?

2. Royal Mail enjoyed a contributions holiday for 13/14 years and now the members are threatened with reductions in benefits. What about clawing the fat bonuses back that the senior execs paid themselves when they were hitting their profit target in this period?

3. There were some daft major business investments by Royal Mail in the last few years esp euro parcel companies where big money was lost. Also what happened to their stake in the National Lottery that they bought when it started to lose sales?

4. How come every couple of years RM need cash for new equipment especially now when so much mail is not being processed by their mail centres and going direct to the delivery offices?

5. Are the senior execs members of the RM Pension Scheme or did they get compensation to leave like senior execs in at least one other company that recently acquired PLC status?

  • 29.
  • At 01:46 PM on 09 Feb 2007,
  • elliott wrote:

I do not work for Royal mail and I agree with all of your comments.

What the Government has done to the Royal mail is criminal, what it has allowed the EU to do should be treasonable.

In its 10 years Nu Labour has robbed from the Brits to pay the EU.
The Gov't have increased their pay and pensions. The majority of the UK will not see £10,000 in pension and yet Tony Blair can stay in charge of this fiasco for a few more months to secure a £20,000 RISE in his pension.

The Government stinks, it is supposed to be there for the benefit of the people. But it should be charged with being there for the benefit of the MP's MEP's and the EU! STINKS

  • 30.
  • At 04:55 PM on 09 Feb 2007,
  • Les Kirkland wrote:

I took voluntary redundency last year from Royal Mail after 27 years as a postman. I considered it best to get what I could now and take my pension as soon as possible. Royal mail pay is poor and the job difficult but the one thing that made up for all this was the promise of a pension. Now that is to go Royal Mail will find it impossible to recruit and keep staff. The reason the pension fund is in such a mess is because for 12 years Royal Mail made no payments into the fund while all the time the staff were paying in every week out of their low pay. Now the staff have to pay up again to cover up management incompetence,

  • 31.
  • At 06:12 PM on 09 Feb 2007,
  • kev postie wrote:

And this from a labour goverment, that the CWU assists with finance.And we even gave them a education minister.Is there a real political party for the workers anymore.Doubt it.

  • 32.
  • At 04:13 PM on 10 Feb 2007,
  • Faz wrote:

I'm a management student at uni and also working for Royal Mail part time. I dont see if pension is a huge problem for royal mail, although 730 million pounds per year sounds alot but RM generates this much revenue in few weeks if not days. The real problem seems that they are not generating enough profit.
RM's competitors, charging less than RM are still making profits. Laying off workers are not the only solution, operations need to re organised.
Royal Mail's biggest asset has been its workforce and structure. If RM continues with its strategy people wouldn't simply prefer to work for RM.
Lack of knowledge and training for both the managers and hourly people is appalling. No one seems to be aware of QUALITY (to name one area).
I hope Top decesion makers look at the positive side of the picture and take the right decesions to improve the company rather than just SURVIVE.

  • 33.
  • At 11:49 PM on 10 Feb 2007,
  • J P Talbot wrote:

Why should public workers have such large pensions when lots of us in the private sector are struggling to save to retirement.
I work in the private sector and yes I enjoy a higher wage but have no job security and have been made redundant twice in the 10 years I have been working.

  • 34.
  • At 01:23 PM on 11 Feb 2007,
  • P Worrell wrote:

This Government, together with the postal regulator, have brought Royal Mail to its knees. They have to compete - but, NOT on a level playing field. Their hands have been tied at every turn.

  • 35.
  • At 09:57 PM on 11 Feb 2007,
  • Harry Catherall wrote:

Quite agree with Mr Lockwoods comments above.
The government sit with most of the card pack unfortunately.

The governments approch to pensions in general hs been appalling. They have managed to undermine confidence in pensions and continue to refer to final salary schemes as generous. Pensions form part of the overall package of employment and should be honoured as such. MP's have probably the most generous final salary pension scheme in the country - which they voted for themselves. Strange that the government are silent about the MP's scheme.

The government will continue to denude the schemes of ordinary people while retaining their "generous" final salary scheme.


  • 36.
  • At 08:12 AM on 12 Feb 2007,
  • Geoff Clogg wrote:

I have worked for the Royal Mail for 20 years, and i have never seen the staff so unhappy. The workplace used to be a happy enviroment, with good public relations and quality of service, now it seems all we are doing is digging a great big hole for us to fall in. If nothing changes there will be thousands of workers loose out on thier hard earned pensions.Management need to change the whole image of the Royal Mail to succeed and turn this business around. Staff should be issued a smart new syle uniform and be MADE to wear it, training for the job which is now non existant should be brought back. Would you trust a monkey to deliver your mail?? Royal Mail now employ anybody and anyone some of which can't even read or write basic English. Workers are not given adequate training to do the job, these are basic things that need to change. Royal Mail need to stop spending stupid amounts of money on usless things, last year we had a man brought in from a private company to work with employees to turn the business around, he got paid £60,000 for three months work and left without doing anything to help us. Unless the management act fast Royal Mail will be no more.
R.I.P Royal Mail.........

  • 37.
  • At 01:56 PM on 12 Feb 2007,
  • Greg wrote:

Final salary pension schemes are outdated and have no place in today's modern companies. The financial burden they place on an employer desperately drains the business of cash.

A well funded money purchase scheme leaves the employer with known future costs, and the employees with still the potential to achieve a good pension (if well funded, more than the final salary scheme) and greater flexibility not to mention better value and higher income for single pensioners as opposed to married.

For existing employees, sure, keep the old scheme, or at least put in place a medium term phase out plan. But there's no way final salary schemes should be in place for new members of staff.

This should apply across all public sector pension schemes - yes, they ARE overly generous, especially when one considers the higher paid workers mentioned earlier.

The UK taxpayer is slowly becoming more financially aware of their pensions, and the majority of the UK workforce have been moved out of these schemes already. There is growing resentment that these overly generous schemes continue to be funded by the taxpayer who cannot benefit from the same scheme himself.

It's only a matter of time before the growing opinion grows to the point where a government of the day feels confident enough to do something about it.

Better negotiate a good money purchase scheme now rather than have a less generous one forced on you in the future. If the Post Office doesn't act soon, it will become just like BA. No longer an airline, but instead a massive pension scheme with massive debts that just happens in invest in a few planes.

  • 38.
  • At 04:16 PM on 13 Feb 2007,
  • john alan dumican wrote:

I worked in the better paid private made redundant two years ago with less than seven grand after sixteen years service and no pension.Why should I subsidise public sector schemes?how many of you retire early on a pension then get another job?

  • 39.
  • At 01:47 PM on 21 Feb 2007,
  • i jackson wrote:

D Luxon seems to be under the impression that mail sorts itself and postmen just deliver it! He says maybe he's missing something, may I suggest a brain?

  • 40.
  • At 11:44 AM on 23 Feb 2007,
  • john byrne wrote:

Perhaps the question for royal mail is 'How long did royal mail take for its pension holiday?'

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