The U.K. government may contribute more money to reduce the deficit of the £22 billion ($34 billion) Royal Mail Pension Plan, London, according to a statement today by Lord Peter Mandelson, secretary of state in charge of the Department for Business Enterprise & Regulatory Reform.
The fund had a deficit of £5.9 billion as of March 31, according to an independent report commissioned by the department.
Details of how the government will intervene remain unclear, but “the government should take over responsibility for reducing substantially the pension deficit” as part of a broader package to rescue Royal Mail, according to Mr. Mandelson’s statement.
“Royal Mail’s historic pension deficit is one of the largest in the U.K., and is highly volatile,” according to the report. “On an accounting basis, its pension deficit is over six times larger than the cash generated by its business operations.”
Royal Mail contributes about £500 million to its pension fund annually. But in an effort to further close the deficit, fund officials have had to top up with an additional £280 million per year, according to Mr. Mandelson’s statement.
“These payments look set to rise substantially when the fund is revalued next year,” according to Mr. Mandelson. “This is near impossible for the business to manage and is a huge demand on its revenues.”
Mr. Mandelson will make a formal recommendation early next year after reviewing the independent report. The proposal would still require parliamentary approval.
One of the motives behind a deficit reduction is to make Royal Mail more attractive for potential suitors to acquire a minority stake in the company, thereby injecting much-needed capital to improve services. Dutch postal services provider TNT has expressed interest in such a partnership, according to a separate news release from TNT.