Lord Peter Mandelson has begun his campaign for the part-privatisation of Royal Mail in an attempt to alleviate its pension deficit.

Mandelson would like to see a 30 per cent stake of the company awarded to a private buyer, and alongside this has set rules he would like to see in new legislation relating to the part-privatisation. He has suggested that private competitors might be required to pay a levy towards a compensation fund for Royal Mail if, after modernisation, extra money is necessary to protect its universal service.

Should the part-privatisation not go ahead as planned, it is feared that members of the Royal Mail Pension Fund will see their benefits slashed by half.

Royal Mail pension fund in danger of failing membersChairman of trustees, Jane Newell, has released a letter to business secretary Lord Mandelson, calling on the government to move ahead with the legislation, which would see part of the company be sold off to a private buyer,

The government's 2008 Hooper review estimated that the fund had a deficit of £5.9bn, but Newell believes this figure to be far higher. Ignoring the deficit, she said, would have "potentially devastating consequences", and is "unlikely to be affordable by Royal Mail".

She said that in light of this exposed weakness, "the trustee would consider it necessary to seek to significantly strengthen the funding basis for the 2009 actuarial valuation."

Newell fears that should the Hooper review's recommendations to part-privatise Royal Mail not be implemented, there could be "very severe" outcomes for the pension plan and for Royal Mail itself.

If the fund is wound up immediately, she said, members would not receive even 50 per cent of benefits.

The Pension Protection Fund (PPF) would come into play should the scheme be wound up, but Newell is unsure that it would be able to rescue a fund as large as this one.

"I would not like to speculate on its ability in practice to absorb the plan without putting an intolerable levy strain on remaining UK schemes," she commented.

Part-privatisation would bring fresh money into the business, which Newell said would be to the benefit of fund members. The House of Lords is set to review the bill on Thursday 26 February.

- Pensions Age February 2009

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