In Pension Age’s May edition, Paddy Briggs argued that the member’s best interests were not being served by the Government’s “sequestration” of the assets of the Royal Mail’s pension fund. Roger Turner produced a cogent riposte in your July/August issue
Paddy reckoned that with an unfunded promise, benefits could be reduced by future Governments (as happened with SERPS and the shift to CPI indexation). He questioned whether enough had been done to keep the scheme solvent on a funded basis.
Roger argued pragmatically that unless the pension issue was resolved there would be no employer covenant and members could expect a lot worse. Roger posed the question “without this solution would the Royal Mail have had a future and avoided a fire sale of its assets”.
Perhaps the Government did seriously considered declaring the Royal Mail insolvent consigning the pension scheme to the PPF. I suspect that had they done so they’d have decided the PPF isn’t big enough, the pension scheme deficit too great and public reaction too damaging.
The “solution’s” provided the tax-payer with a short-term windfall and some a long-term hangover. We’re now saddled with yet more unfunded pension debt and we’ve sent out some pretty weak messages to the markets.
So long as we load up our balance sheet with this debt, we are handicapping future economic growth. Ratings Agencies, our new economic governors, are only too wary of this soft option. Palming off today’s problems on tomorrow’s tax-payers is no-longer “clever” from a macro-economic viewpoint.
And this asset sequestration is also damaging in the message to the sponsors of other partially funded pension schemes. If the Government can walk away from their funding obligations – why can’t they?
In answer to Roger’s question, I’m worried the Royal Mail, with or without its pension deficit has no future in its current form. I have my doubts whether, had a fire sale taken place, it would have generated sufficient cash to lock-down the liabilities
The Government decided that it had no other option than to spread the pain over 40 years and create a soft rather than “crash” landing – so Roger is right, there was no other politically acceptable alternative.
But Paddy and trustees like him should go on asking the difficult questions. We cannot allow the Royal Mail to become the Trojan horse that every feckless employer uses to walk away from their pension obligations. Nor can we allow those who rate our economic stability to believe we aren’t serious about liability management.