Taxpayer bill for Royal Mail pension scheme jumps

Taxpayer bill for Royal Mail pension scheme jumps

The cost to taxpayers of the Royal Mail Statutory Pension Scheme (RMSPS) is increasing, as liabilities rose to £46.8bn at the end of March 2017.

This yearly increase of £8.5bn is partly due to the assumptions used in the annual valuation of the scheme liabilities.

According to RMSPS annual report, released by the Cabinet Office, the assumption with the biggest impact is the discount rate net of price inflation, which decreased 0.72 per cent.

As required by the International Accounting Standard 19 Employee Benefits (IAS 19), this discount rate is based on yields on high quality corporate bonds. Any decrease in the discount rate net of inflation leads to a significant increase in the reported liability, the document stated.

Taxpayers support the scheme’s liabilities. In April 2012, the government assumed responsibility for both the Royal Mail Pension Plan (RMPP) deficit and the majority of the plan’s liabilities, which will be paid from a general fund using tax revenues.

Following this transfer of responsibility to the government, the RMSPS was established to provide for members of the RMPP.

The scheme has 103,215 active deferred members, 117,835 deferred pensioners, and 194,468 pensioners. Pension payments represented £6.8m in the year ending in March, a decrease from £14.1m in the previous period.

Earlier this year, Royal Mail announced it would be closing Royal Mail Pension Plan, its current defined benefit scheme, to future accruals from next year.

The company is now offering members the choice of joining either a defined benefit cash balance scheme or a defined contribution scheme.

From 1 April 2018, the DB cash balance scheme would provide members with a guaranteed lump sum at retirement.