Royal Mail’s pension surplus has increased by £381m from £3,049m to £3,430m between 27 September 2015 and 27 March 2016 according to its latest financial results.

Royal Mail said for the full year ended 27 March 2016, the surplus rose from £3,367m as at 29 March 2015.

Royal Mail had one of the largest defined benefit pension plans in the UK (based on membership and assets), called the RMPP. On 1 April 2012 (one week into the 2012 to 13 reporting year) – after the granting of state aid approval by the European Commission to HM Government on 21 March 2012 – almost all of the historic pension liabilities and pension assets of RMPP, built up until 31 March 2012, were transferred to a new HM Government pension scheme, the Royal Mail Statutory Pension Scheme (RMSPS).

On this date, RMPP was also sectionalised, with Royal Mail Group Limited and Post Office Limited each responsible for their own sections from 1 April 2012 onwards. The transfer left the Royal Mail section of the RMPP fully funded on an actuarial basis. On this basis, using long-term actuarial assumptions agreed at that date, it was predicted the group would have to make no further cash deficit correction payments relating to the historic liabilities.

The RMPP uses derivatives (such as swaps, forwards and options) to reduce risks whilst maintaining expected investment returns. The largest risks faced by the plan are movements in interest rates and inflation rates and to reduce the risk of movements in these rates driving the plan into a funding deficit, and the group not being able to maintain its March 2018 commitment, the trustee has hedged in advance a significant proportion of the funding liabilities which it is estimated will build up by March 2018.

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