Royal Mail Statutory Pension Scheme deficit increases; net expenditure continues to fall

The Royal Mail Statutory Pension Scheme (RMSPS) deficit increased to £50,876m as at 31 March 2022, up from £48,614 to in March 2021, according to the latest Annual Report and Accounts published by the government.

The RMSPS also recorded a net actuarial loss of £3.1bn over the past year, driven by the higher than assumed pension increases, which in turn increased the scheme liability and resulted in an experience loss.

In total, around £1.4bn of benefits were payable in the year in respect of pensions, commutations, lump sums and death benefits, equal to the level paid out in 2020-21, while total transfers payable fell from £4.4m in 2020-21 to £3.2 million in 2021-22.

The net expenditure for the year was also down, falling from £0.9bn in 2020-21 to £0.6bn in 2021-22, due to a lower interest cost following a reduction in the nominal discount rate, which decreased the interest cost in 2021–22.

Indeed, the report showed that net expenditure has been decreasing over the past three years due to the reduction in the nominal discount rate, while net cash has remained consistent during the same period.

Royal Mail is also planning to introduce a new collective defined contribution (CDC) scheme to replace the Royal Mail Pension Plan, although the annual report confirmed that this is not expected to have a significant impact on RMSPS.

Plans for the Royal Mail CDC scheme have been underway for some time, and it is now expected to launch by the end of 2022 or early 2023, following a positive outcome to the recent member consultation, which was highlighted as a key milestone for the scheme.

In line with this, the government has confirmed that draft legislation for single or connected employer Collective Money Purchase (CMP) schemes will come into force from 1 August 2022, with The Pensions Regulator having laid its new code of practice for CDC schemes before parliament in June 2022.

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