UK - The Royal Mail has been handed a £1.75bn lifeline by the government to stabilise its £5.6bn pension deficit and modernise its postal service.
The department for trade and industry said the government would make available £900m in the form of a loan to be used on “commercial” terms and has allowed the release of £850m from Royal Mail coffers to be directly transferred into a “pension escrow” account to be drawn by trustees in the event the company fails.
A spokesperson for the department said the £900m loan would be paid off by 2013 but the £850m would not need to be moved back from the pension account until the deficit was fully cleared.
Allan Leighton, Royal Mail’s chairman commented on the financing deal: “This sound commercial investment from our shareholder will give us the opportunity to modernise and transform a company which serves homes and businesses throughout the country and is vital to its success.”
In its 2005/06 statement released today, Royal Mail said its pension deficit had jumped £1.6bn within the last year to its current £5.6bn level. It claimed £2.2bn of the total sum was directly linked to mortality.
Royal Mail also committed itself to increasing employer contributions to approximately £500m in 2007 (from £340m in 2006) and to paying a lump sum of £250m in an bid to close the deficit gap.
A spokesperson for Postcomm, the independent regulator for the postal services, welcomed the move by the government and claimed it “could only be a good thing for Royal Mail”.
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