Monday, 19 March 2012

The Government’s raid on the Royal Mail Pension Fund

I am surprised that the Pensions world has so far been so sanguine about the extraordinary and unprecedented proposal by Government to sequester the Assets of the Royal Mail Pension Fund. The action is almost Maxwellian in its audacity and whilst presented as being in the interests of the members of the Fund it is in fact a cynical move designed to boost the Treasury coffers and prepare the Royal Mail for privatisation. Whilst the Fund has a negative Funding ratio it nevertheless has £28bn of Assets that employees, the sponsor and trustees have built up over the years. It is the members’ money and only they have a right to it.

By transferring members from a funded trust into the much less assured world of being an unfunded liability on the public finances is far from necessarily in their interests. As we have seen Governments can and do change the basis of Public Sector pensions at their discretion and there is little that anyone can do to stop them. A Pensions Trust provides legal protection to its members and has Trustees to exercise that protective role. At a stroke Royal Main fund members will lose that security and no longer have Trustees acting in their interests.


  1. Paddy

    I agree with you and I’m surprised that this move has been welcomed by the unions.

    It may be that they consider that members have more chance of getting a 100% pay out from an unfunded public sector scheme than from a partially funded scheme with a weak employer convenent.

    But I suspect that as time goes by, the security that active and defferred members currently enjoy will be diluted and once the “windfall” has been absorbed into the national defecit, the liabilities, that don’t appear on any balance sheet, will be considered as “another Government’s issue”.

    I think the immediate consideration will be future accrual but the RPI/CPI switch suggests that existing benefits are not as safe as might be imagined.

  2. Does this mean the Treasury thinks investment returns on assets will be nil or negative over the next 30-40 years? That's the only logical, long-term justification for selling off the assets today. Treasury officials don't say that when you ask them why they're selling them off, however. The best they can come up with is "The government is not an asset manager". To which I replied, "What about the British Coal schemes?" "Ah, well they're not in deficit" - as if that made all the difference. So the government proposes to deal with a £9bn deficit by creating a £34bn one. Brilliant.

    On the unions, I suspect Henry's right, they see the unfunded public schemes as more "secure" than non-fully-funded private-sector ones. They obviously feel the British government is one of the safest bets out there. And of course the credit ratings agencies agree (for the moment).