Royal Mail closes pension scheme to new workers

In an effort to do something to reduce its pensions deficit, Royal Mail said it will stop allowing new employees to enter its final salary pension scheme. The deficit for the scheme currently stands at £6.6 billion. With around 167,000 of Royal Mail’s 190,000 employees paying into the scheme, payments into the fund have dropped 86 percent to £22 million in the half year up to September. The decline in contributions are said to be cutting into Royal Mail’s profits, due to its injections of £730 million per year into the fund to help make up the shortfall in worker contributions.

The chief executive of Royal Mail said that its contributions to the pension fund was also hurting its ability to compete since the postal system opened to competition in 2006. The extra contributions have led Royal Mail to raise prices on products and services, mainly to business customers. Because of increased prices, Royal Mail could begin to lose contracts to other providers, as they lost a £12 million contract to the Department of Work and Pensions.

Royal Mail said it would soon begin to look for a replacement pension scheme for new employees. It will also look for ways to keep an affordable final salary scheme for current workers.

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