The Royal Mail Statutory Pension Scheme reported an increased total pension liability of £46.814bn to the year ending 31 March 2017.
In its Annual Report and Accounts 2016–17, Royal Mail highlighted that its defined benefit scheme’s pension liability had risen by £8.5bn from £38.302bn at 31 March 2016 to £46.814bn at 31 March 2017. The increase in liability was influenced by a drop in the discount rate used to value the scheme liability to 2.8 per cent from 3.6 per cent in 2015/16, and was “slightly offset by an experience gain arising due to the 2017 pension increase being lower than assumed”, the report said.
Royal Mail paid a total of £1.313bn of benefits in the year including pensions or annuities, commutations, lump sums and death benefits. This was slightly up from £1.309bn the previous year.
Furthermore, the total number of members including pensioners, dual status and deferred/active deferred members fell from 401,765 at 31 March 2016 to 394,473 at 31 March 2017.
Over the year, 318 members transferred out of the scheme, compared to 482 last year, totalling £6.306m, significantly less than the £14.146 paid out in 2015/16. Royal Mail noted that fewer members had requested transfers as a result of recent changes in legislation, particularly the 2015 Pension Freedom and Choice reform.
“New legislation, which came into place in April 2015, restricted the ability to transfer out of schemes such as the RMSPS. As the RMSPS has been defined as a public sector, unfunded scheme, members are restricted in taking advantage of the new pension flexibility and can only transfer to another direct benefits scheme; therefore the number of transfers out has reduced.”
Net expenditure for the year was down to £1.355bn from £1.426bn last year, consisting purely of the pension financing cost. The report explained that this reduction is a result of a lower starting liability caused by the increase in discount rate used.
Last month Royal Mail confirmed its plans for a new pension plan that comprises of a defined benefit cash balance scheme and a defined contribution scheme that will be funded within its current £400m annual pension contribution.
The company noted that the DB cash balance scheme’s risk will be “materially lower” than the current plan and is a “manageable risk” for the company.
The firm is offering its employees a choice between a DB scheme and a DC scheme, which have been set up as new sections of the Royal Mail Pension Plan. Royal Mail is one of few companies replacing one DB scheme with another.
More recently, workers union Unite has called on the Royal Mail to provide a more detailed but simplified explanation of the new pension proposal.