Royal Mail has recorded a surplus of £3,839m as at 26 March 2017, on an IAS 19 accounting basis.
Its full year results, published 18 May, revealed an increase of £409m to its surplus, up from £3430m on 27 March 2016. Assets for the scheme increased from £7,374m to £9,847m and liabilities also increased from £3,815m to £5,992m.
The company said its accounting liabilities have increased over the year due to the fall in corporate bond yields, but this was offset by the increase in the scheme’s assets, largely due to the hedging strategy adopted by the scheme.
It was revealed earlier this month that Royal Mail’s triennial valuation, based on the scheme at 31 march 2015, agreed a surplus of £1,074m, comprising of assets of £9,603m and liabilities of £8,529m.
It said that under these assumptions the cost of the benefits being accrued each year, based on market conditions, would be £1,260m. This is much higher than the company’s projected contributions of £320m in 2017/18 and £110m by employees. It expects the scheme’s period in surplus would end during 2018 if the scheme remains open in its current form.
As a result, Royal Mail will close the scheme to future accrual on 31 March 2018, however, is in dispute with the Communication Workers Union over the future of its retirement benefits. Royal Mail has proposed a new DB cash balance scheme that will provide members with a guaranteed lump sum at retirement. It said the scheme would build on the proposal put forward by workers union, CWU and addresses some of the employee feedback it has received during a consultation.
This scheme would be set up in a new section of the Royal Mail Pension Plan. It would guarantee a lump sum at retirement and would allow members to receive the total value of the contributions paid towards their lump sum up to retirement. Moreover, discretionary increases would be applied up to retirement, in line with the investment performance of the scheme. Once applied, these increases would also be guaranteed, Royal Mail said.
The newly proposed scheme would include elements of the CWU’s proposal, without some of the “inherent risks” that the CWU scheme would have created, the company added. However CWU described it as a “mutant DC proposal” and that Royal Mail are “premature and arrogant” to suggest it.