Royal Mail may close ‘gold-plated’ pension scheme

MORE than 90,000 Royal Mail staff have been told that their final salary pension is “unaffordable” and could be shut down, as experts warn that other private companies may also close generous schemes.

Royal Mail has written to employees telling them their “gold-plated” pension scheme may be ended because a deterioration in financial market con- ditions means it is likely to become too expensive to run beyond 2018.

The generous old scheme is already closed to new staff, but the change would mean two-thirds of current staff, who signed up for a guaranteed pension, will be forced to switch to a different type of pension, which does not provide a guaranteed income.

At present, the scheme costs Royal Mail £400million to keep open. However, the annual cost of running it is likely to more than double to £900mil- lion, it said in a letter sent in June. The probable closure of one of the UK’s biggest pension funds comes at a time of mounting fears over the sustainability of final salary-type pension schemes, which once promised staff a generous level of guaranteed benefits.

Measures announced by the Bank of England last week to cut interest rates and roll out another round of quantitative easing will cripple already struggling pension schemes further, experts said, with more warnings about the closure of final salary schemes expected in the coming months.

Graham Vidler, of the Pensions and Lifetime Savings Association, which represents UK pension schemes, said: “The Bank of England’s decision to cut interest rates will give pension schemes cause for concern. They have been battling historically low interest rates for over eight years and further cuts will put them under even greater pressure.”

A Royal Mail spokesman said: “We understand how much our people val- ue their pension benefits. We committed to keep the [pension plan] open to future accrual on a career average basis for existing members without further changes, at least until March 2018.”

Meanwhile, in the days since the Bank cut rates from 0.5 per cent to a record low 0.25 per cent last week, four of Britain’s biggest insurers have reduced pension payouts for savers turning their pension pots into a lifetime income through an annuity. Aviva, Legal & General, LV= and Just Retirement have all scrapped their best deals for new annuity customers and are offering rates up to 8 per cent lower than at the beginning of July.

According to research by annuity expert William Burrows, at the beginning of July, a single 65-year-old saver would have been offered just £4,800 for each £100,000 by insurance giant Legal & General.

Today it offers £4,462 a year on the same deal — 8 per cent less than a few weeks ago.