Fake worries for Royal Mail and its postal workers and pensioners

Last week I got a mail along the lines pf the headline above from some journalist and hoped it would not see the light of public distribution. It has now, read the sub-headline and groan.

“Mismanagement leaves scheme with nothing to pay retired postal staff“

This suggests that postal workers have no pensions coming their way and this of course is wrong. It is alarmist and confuses public, state pensions and private pots in a way that gives the sceptics a chance to undermine pensions,

That we pay the Royal Mail’s pension at the rate of £4m a day may be right, it is part of the public pension debt and is a scratch relative to the amounts we pay for public and especially state pensions.

This blog reported on the financial manoeuvre that took £29m into the Treasury and left the tax-payer with what now looks like a £50bn debt in terms of expected future pension payments. That is a matter for Treasury officials to consider, was it a good deal for the tax-payer? Were there alternatives to get the Royal Mail off public hands, these are matters for bankers and bond managers to discuss.

If you want to read about what happened at the time , read my budget day blog on March 20th 2013

Whether it be from the Royal Mail Pension Scheme or the impeding cessation of national insurance rebates, this Government is receiving some tasty cash injections from the pensions system. Let’s hope that that the Chancellor remembers our elderly and puts them at the centre of his thinking.

What is not right is to suggest that debts to the pension to pay pensions to postal workers are “out of money”, which is what the headline is saying. It’s rubbish, we have a solvent Treasury and it is not struggling to pay postal workers pensions.

A coincidental issue that should worry Royal Mail

The state has taken a post sack off the Royal Mail’s shoulders. But this is not to say I am not worried about Royal Mail and its finances.

Last week the Danish postal service’s equivalent to Royal Mail confirmed that a third of its postal workers would be made redundant while physical delivery of letter post would come to an end.

This is how the BBC reported it

Denmark’s state-run postal service, PostNord, is to end all letter deliveries at the end of 2025, citing a 90% decline in letter volumes since the start of the century.

The decision brings to an end 400 years of the company’s letter service. Denmark’s 1,500 post boxes will start to disappear from the start of June.

What worries me is not that postal workers with defined benefit pensions will get their payments. What is left of funded DB at Royal Mail is in good shape and the Treasury looks after the rest.

What worries me is that Royal Mail’s CDC scheme is dependent on a solvent employer and I worry that in the timescales of pension schemes like the CDC arrangement, a loss of workforce would lead to an issue with its CDC scheme. I am not alone about this. There is no Plan B for a weakening of Royal Mail as a business since Royal Mail’s CDC is set up simply for Royal Mail.

It is an heroic assumption that Royal Mail will maintain its core services such as letter delivery but it is not clear it will avoid the issue that PostNord has faced. Why I am for CDC is that it gives better pensions over time than a defined benefit pension and a lot better retirement income than an annuity, but it needs continuity and Royal Mail, on its own cannot guarantee that.

Rumours reach me that around the company businesses in certain sectors are talking with each other about collective DC plans which are feasible for employers but pay more to staff. But they will not be set up as Royal Mail’s has been, to offer a scheme that assumes members stay in one company and get a pension paid against a future salary, they will be paid on something based on contributions received for which slithers of pension will be promised.

Royal Mail will need to change the way it works if it is to avoid losing the majority of workers and the scale needed to run future CDC pensions. It should be happy that the Government took away its pension responsibilities for the majority of its staff more than ten years ago.

We need the new management to breathe fresh breath into Royal Mail.  The alternative is that the Royal Mail collective DC  plan has a short life and the winding up provisions  undermine CDC as a concept.