Brussels approves transfer of UK Royal Mail pensions deficit

UK - Proposals for the UK government to take on the Royal Mail’s £4.6bn (€5.4bn) pension deficit have received sign-off from the European Commission, with the imminent transfer resulting in the creation of a new, smaller and fully funded pension scheme.

Approving the UK government’s request to grant state aid, the Commission said it would only allow for the transfer of any costs in line by “comparable companies”.

Joaquin Almunia, the commissioner responsible for competition policy, said it was important to ensure no market participant enjoyed an undue advantage.

“The relief of excessive pension costs and the restructuring aid approved today will help ensure this balance for Royal Mail and its competitors,” he said.

Norman Lamb, minister for postal affairs within the UK Department for Business, Innovation and Skills (BIS), said the government “warmly welcomed” the approval of state aid.

“It safeguards the universal postal service by allowing the government to relieve, in full, the historic pension deficit of the Royal Mail Pension Plan and restructure the debt on the company’s balance sheet as required at the time of sale,” he said.

First announced as part of 2010’s Postal Services Bill, the Department for Business, Innovation and Skills (BIS) at the time said the Royal Mail Pension Plan would shrink to around one-tenth of its current size.

Lamb said the new fund, the Royal Mail Statutory Pension Scheme, would be established using secondary legislation. 

A BIS spokesman added it expected the new fund to be around £2.5bn, with the remaining £28bn in assets and liabilities transferred to the Treasury.

The proposed asset transfer would imply a noticeable increase in assets under management since September last year, when Royal Mail Group’s half-yearly report noted assets of £28.1bn, with a deficit of £4.6bn.

At the time, chief executive Moya Greene said it was “essential” to receive permission from the European Commission on the restructuring, while critics have branded the transfer of assets to the Treasury “dangerous”.