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Royal Mail: Postcomm
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Royal Mail is relying on the continuing equity bet - 65 per cent of assets, or £15bn, are in equities - to clear its pension deficit. Are the board, the government and Postcomm managing the implications for customers and taxpayers of the huge risk in this equity bet or just keeping their fingers crossed?
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Royal Mail has put the plan to Postcomm, the industry regulator, which must give approval before the change can be implemented. This is not certain, as Postcomm is understood to be unhappy with some of the data Royal has submitted as part of its proposal. A consultation is likely sometime in the new year.
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By Postcomm's calculations the Royal Mail would garner an extra £320 million from the rise, to contribute to its pension pot. Over an eight to ten year period the contribution could pay off the firm's deficit, market conditions permitting.
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One of the intentions of the new regime is to provide Royal Mail with certainty as to the consequences of failure. If performance against targets 1-9 is between 1% and 5% below the standard, there will be automatic financial penalties. For targets 10-12, automatic penalties apply 0.1% - 0.5% below standard. Failures of a greater magnitude can be investigated by Postcomm, and additional penalties applied unless Royal Mail can prove that it used all reasonable endeavours to reach the standard.
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