Moves by Royal Mail to clear its £5bn pension deficit within 17 years will still leave a hole of almost £2.9bn, according to analysis by independent pension consultant John Ralfe.
In the latest RBC Capital Markets' Open Forum Note, Ralfe, former head of corporate finance at Boots, pointed out Royal Mail is currently making inflation linked deficit contributions of £260m a year, versus only £233m net operating profit in 2007.
Ralfe said, even if Royal Mail could sustain the contributions, there would still be a large deficit at the end of 17 years.
He said: “Royal Mail is relying on the continuing equity bet – 65% of assets or £15bn are in equities – to clear the pension deficit. Are the board, the government and regulator Postcomm managing the implications for customers and taxpayers of the huge risk of this equity bet or just keeping their fingers crossed?”
Ralfe said for many years the plan held 80% equities, but in March 2007 it moved to 65/35 equities/bonds and property, while also buying £2.5bn of index-linked debt. But he said just to pay the £800m annual pensions, it needs £16bn of bonds/property at a 5% yield – versus the £8bn held – double the current bond/property allocation.
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