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Taxpayers have been slapped with a £45billion bill for Royal Mail’s pension pots after mismanagement left the scheme with no cash to pay retirees.
The coalition Government took over most of the company’s pensions in 2012 ahead of privatisation. Under the Conservatives and the Liberal Democrats, the scheme’s assets were spent, The Telegraph reports.
This gold-plated scheme has already cost taxpayers £16.5billion since 2012, an average of around £3.8million a day, according to official data. Another £28.7billion needs to be paid before the scheme ends.
Since the early 2000s, Royal Mail had been facing business issues due to online communication becoming more popular than posting letters.
In 2010, the coalition Government began making the argument for privatisation. Two years later, Royal Mail was separated from the Post Office.
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Taxpayers have been handed a £45billionn bill for Royal Mail’s pensions after Government mismanagement
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In order to prepare for this, the Government took on responsibility for the Royal Mail Pension Plan’s deficit and most of its pensions in April 2012.
As a result, retirement payments accrued up to this date were transitioned into the newly created Royal Mail Statutory Pension Scheme.
Despite this, ministers did not use the pot’s funds to make investments for future retirement payments. Parliament has since voted on the amount needed each year. Pensions are then paid in full, leaving the taxpayer to foot the bill.
Neil Record, a former Bank of England economist, explained: “The Government promised index-linked pensions to a large group of employees, then took the £29billion that sat in the pension fund and spent it.
“Out of the blue, a new unfunded liability of approximately £50billion emerged solely to allow the Government to sell off the Royal Mail.
“That £50billion is saddling future taxpayers with the obligation to repay this debt.”
As of today, the scheme is closed with no one else being able to join and no more contributions are added but it will continue as long as members draw out pension payments.
From 2012-13 to last year, the cost of the scheme has jumped from £1.2billion to £1.6billion last year. The scheme forecasts that this will rise to £1.7billion this year.
Some 204,000 retirees are already receiving payments from the scheme with an additional 145,000 have built up pensions and are still working.
Pension claimants are rewarded with guaranteed, inflation-linked income for life.
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Britons have had to pay millions in tax due to the Government’s actions
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Royal Mail’s privatisation began in 2013 and was completed by 2015. Current workers are members of the Royal Mail Pension Plan.
Employees have earned contributions towards retirement pots, rather than final salary pensions, since 2018. The scheme’s latest valuation showed a surplus of over £1billion.
In October last year, the company became the first in Britain to offer a collective pension fund. This model is similar to those used in Canada and Denmark.
Royal Mail is currently in the middle of a takeover bid from Czech billionaire Daniel Kretinsky.
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