Royal Mail posts pensions surplus as it lobbies for CDC legislation

The Royal Mail DB pension schemes posted an annual surplus of £59m as of March 2019 as the firm continues to lobby the government for collective defined contribution (CDC) legislation.

It’s two main schemes, the Royal Mail Pension Plan (RMPP) and the Royal Mail Senior Executives Pension Plan (RMSEPP), had a combined post-tax surplus of £59m, down from the £143m surplus in March 2018.

The Royal Mail’s full year results report also revealed that the schemes had combined assets of £10,877m, a £416m increase compared to last year, although its liabilities also rose, by £500m to £10,818m.

The RMPP closed to future accrual in March 2018 and its members were transferred to either the Defined Benefit Cash Balance Scheme (DBCBS) or its defined contribution counterpart.

A deficit of £72m is shown in the DBCBS balance sheet, although the company days that it “is not in funding deficit and it is not anticipated that deficit payments will be required”.

In March 2019, the government concluded its consultation into CDC pension schemes and confirmed that primary legislation will be brought forwards to introduce CDC pensions “as soon as parliamentary time allows”.

The Royal Mail and the Communication Workers Union are lobbying the government to “make the necessary legislative and regulatory changes to enable the introduction of a CDC pension scheme”.

The firm added: “This is an important step towards allowing the introduction of a CDC scheme for our employees as soon as possible.”

In September 2018, trustees of the RMSEPP purchased a further buy-in insurance policy for all remaining pensioners and deferred members. The buy-in means that all liabilities of the scheme are covered by insurance policies.

The total value of the buy-in annuity policies in place is £335m (March 2018: £148m) and is included as a pension asset and a pension liability at 31 March 2019.

The company expects to contribute around £400m into its UK pension schemes in 2019/20.

Royal Mail Group chief executive officer, Rico Back, said: "Our ambition is to build a parcels-led, more balanced and more diversified international business, delivering adjusted group operating profit margin of over four per cent in 2021/22, increasing to over five per cent in 2023/24.

“In 2018-19, after a challenging year, we delivered productivity improvements and cost avoidance in line with our revised expectations.

"The investment in the UK, and expected lower cash flow in the early years, means we are rebasing the dividend and changing our dividend policy.

“This is not a decision we have taken lightly as we know how important the dividend is to our shareholders. We have sought to find an appropriate balance between sustainable shareholder returns and investing in the future.”

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