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Royal Mail Pension Scheme

Volume 489: debated on Thursday 19 March 2009

1. What estimate he has made of the cost to the public purse of assuming liability for the Royal Mail pension scheme. (264469)

We estimate that the Government will assume total liabilities of £29.5 billion and assets of £23.5 billion. That would mean the Government absorbing a deficit of £6 billion. This assessment of the liabilities in the scheme and the funding position is based on the most recent trustee valuation, from March 2008. However, we anticipate that the funding position of the scheme could well have worsened since that date, so when we have updated figures from the new valuation, beginning this month, we will finalise our assessment of the funding position of the scheme.

Clause 20 of the Postal Services Bill will allow the Government to take the existing assets from the pension fund into the consolidated fund and spend it that very same year. Is it wise as part of addressing the pension funding crisis to take the existing inadequate assets and use them to rescue the Government’s current deficit, making the problem worse in the longer term?

Our motivation is not about the public sector accounting impact. Our motivation is to give greater security to the hard-working men and women who work for Royal Mail, because the pension fund is an increasing burden for Royal Mail. At the same time, however, if we are to ask the taxpayer to take on those liabilities—I have set out what the scale of those liabilities is—it is equally right that we also give the taxpayer some confidence that the company can be transformed and modernised in the future. It is precisely those two things that are set out in the Postal Services Bill, which was published recently.

Postal workers in my constituency will be greatly reassured by the Government’s commitment to rescuing the pension scheme, but could the Minister tell the House to what extent the deficit of £6 billion is due to contributions holidays by previous employers?

The scheme was in surplus as recently as 2001, so I am not sure that the deficit can be ascribed to contributions holidays. Another factor that right hon. and hon. Members should consider is that the Government have not taken a dividend from Royal Mail for some years, so the most important thing is to concentrate on what we do now. As things stand, with a combination of the pension fund deficit and falling mail volumes, the company is in a very serious position. That is precisely why we have brought forward plans to deal both with the pension fund and with the transformation of the company in the future.

The Minister has just said that the Government proposals would provide greater security for postal workers’ pensions, but can he confirm that clause 19(6)(b) of the Postal Services Bill provides that this or a future Government could waive the pension guarantee and vary the terms of the postal workers’ pensions without the approval of the trustees, who will lose their power to protect the pensions under the provisions of the Bill?

The changes that we propose to the pension scheme will mean that the deficit is handled on the same basis as the pension schemes serving teachers, nurses and civil servants. That will indeed give Royal Mail staff far greater pension security than they get at the moment, when the deficit appears to be increasing year on year.

Can my right hon. Friend say whether the income from the selling of equity and shares in Royal Mail will be used either to reduce the pension deficit or to modernise Royal Mail?

Our intention, through a partnership, is to bring in new investment into the company. We intend to bring in not just investment in Royal Mail, but experience from another European postal or network company that has been through a transformation of the kind that Royal Mail needs, but has not yet gone through. The harsh fact is that if we do not get that investment and experience, the decline in mail volumes will decide the issue for us. As things stand, without the transformation of the company, for each decline in mail volumes of 1 per cent., Royal Mail loses around £70 million. There is therefore an urgent need not only to deal with the pension fund, but to modernise Royal Mail.