The combined accounting surplus of Royal Mail's two defined benefit (DB) pension plans grew by 12% in the year to 26 March 2017, the company's annual report has revealed.
The two schemes - the Royal Mail Pension Plan (RMPP) and the Royal Mail Senior Executives Pension Plan (RMSEPP) - had a surplus of £3.8bn on the IAS 19 measure, compared with £3.4bn as at 27 March 2016.
The scheme had £9.8bn of assets and £6bn of liabilities on the accounting measure this March, compared to £7.4bn and £3.8bn in the previous year.
However, on an actuarial/cash funding measure, the schemes saw a drop of around £700m in excess cash. As at 31 March 2017, the schemes had a combined surplus of £1.1bn, compared to £1.8bn last March.
On this measure, the scheme had £10bn of assets, and £9bn of liabilities, up from £7.4bn and £5.7bn respectively in 2016.
The figures come ahead of the planned closure of the RMPP next year, as the company expects the costs of running the scheme will more than double and drain the surplus. It predicts contribution rates will increase from 17% of pensionable pay to over 50% by April next year, resulting in an annual cost of more than £1bn.
The postal service is currently in discussions with its trade unions about the prospects of two different ways to provide benefits more generous than under a defined contribution (DC) scheme.
The Communication Workers Union (CWU) has put forward a "compromise" risk-sharing scheme where DB and DC members would be merged into a single pension scheme. This scheme would guarantee a minimum wage in retirement with inflation-linked increases dependent on investment performance.
However, Royal Mail has said this would be too risky for the company, and has instead proposed a cash balance scheme which would see members guaranteed a lump sum on retirement, which could be uplifted on a discretionary basis depending on investment performance.
Discussions between the company and its unions on the future of pension provisions are ongoing.
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