The Royal Mail Pension Plan has recorded a reduced surplus since he scheme closed to future accrual.
In its financial report for the year to 25 March 2018, the RMPP ended the period with an adjusted accounting surplus of £1,134m, following guidance from IFRIC 14. The surplus was weakened in response to the schemes closure to future accrual on 31 March 2018, Royal Mail said.
While the legal right to benefit from any surplus in the plan has not changed as a result of the closure, “only one week of economic benefit is recoverable as a reduction to future employer contributions at 25 March 2018, with the remaining surplus assumed to be available as a refund,” the report noted. This resulted in a change to the tax treatment of the economic benefit of the surplus.
The pre IFRIC 14 accounting surplus for the RMPP was £3,250m at 25 March 2018, with assets of £9,939m and £6,689m of liabilities. Following the IFRIC 14 adjustment, the accounting surplus of the RMPP was £2,116m.
Furthermore, the actuarial funding position at 31 March 2018 is yet to be announced until the actuarial valuation is agreed between the trustee and the company. Based on the rolled forward assumptions from the March 2015 valuation, however, the RMPP actuarial surplus at 31 March 2018 was estimated to be £100m. The surplus was £1,074m at 31 March 2017.
“Any actuarial surplus will remain in the RMPP for the benefit of members until the point at which all benefits have been paid out or secured,” Royal Mail confirmed.
Following the scheme’s closure, members have been automatically opted-in to the Royal Mail’s defined benefit cash balance scheme (DBCBS) from 1 April 2018. The scheme is accounted for as a DB scheme in a similar way to the RMPP.
Last month, Royal Mail outlined its initial plans for its proposed collective defined contribution scheme, with the aim to make minimal legislative changes, to the Work and Pensions Committee.
The current Royal Mail and Communication Workers Union-approved plan is for a CDC scheme with a defined benefit lump sum alongside it, providing one overall arrangement for Royal Mail employees. As a result the scheme would provide members with a retirement income as well as a lump sum at-retirement from the DBLS.
In addition, assuming the necessary legislative and regulatory changes are made, the CDC scheme would pool risk among members, while the company would guarantee the lump sum.
Royal Mail group HR director Jon Millidge acknowledged that while it is still early in the process to decide the full terms of the proposed scheme, he will keep the Committee updated on “significant developments”.