PENSIONS

In expectation of imminent pension developments it is appropriate to up date Branches and CWU members on the current position.

We have now passed the 30 th June date that was seen as a deadline for agreement between Royal Mail and the Trustee Board on the pension deficit and the need to fund this. As reported earlier in the year, we expect the latest valuation to show the actual deficit to be announced at around £10 billion.

The Continuing Relevance of “Time to Deliver” /CWU Solutions

At this juncture it is important to remind ourselves of the substantial work carried out by the Union in our document entitled “Time to Deliver” which was published in January 2010. At that time “Time to Deliver” argued for the Labour Government to act on its morale obligation and take responsibility for the pension deficit. In “Time to Deliver” we also set out CWU solutions, commented on the Hooper Report, gave an overview of legal and state aid issues and made the case that it was possible for Government to resolve pensions without privatisation or legislation.

We attach some key pages from the Union's “Time to Deliver” document.

We still believe that calling for a 40 year repayment schedule alongside a crown guarantee, remains relevant and should continue to be the cornerstone of Union policy. This would secure our members' existing and future pension arrangements without further detriment to benefits, whilst at the same time transform and stabilise the company's finances both now and in the future.

Next Steps

We anticipate the actual pension deficit being announced very soon and that this is likely to coincide with the company and the Trustees making real progress on a repayment schedule. We also anticipate that the Pensions Regulator will take a view as to the sustainability of any proposals to fund the deficit. This in turn will reignite the Government debate.

Whilst at this stage we cannot be certain of exactly how the Government propose to deal with the deficit, we should assume that they will argue that a pensions solution must be directly linked to other recommendations in the Hooper Report and will therefore use any intervention to publicly push their privatisation plans.

The CWU has never accepted such a linkage, as is clearly shown in the ‘Time to Deliver' extracts below. We believe a solution to the Pensions Deficit is simple justice for the workforce, and must be implemented outside of other Government policy ambitions.

In further meetings with Government, Royal Mail and the Trustees, the Union will continue to highlight our proposed pension solutions at every opportunity, whilst continuing to oppose privatisation.

Given the importance and pressing timescales of the subject matter we have attached a letter for members explaining the current situation. We would ask Branches to immediately ensure that this letter is distributed to CWU members in the workplace.

We will keep you informed of further developments.

Yours sincerely

Dave Ward Billy Hayes

Deputy General Secretary (P) General Secretary

TO: ALL CWU MEMBERS

Dear Colleague

PENSIONS

In expectation of imminent developments on pensions it is important that we update you on the current position

Announcement of the Pension Deficit

We have now passed the 30 th June date that was seen as a deadline for Royal Mail and the Pension Scheme Trustee Board to reach agreement on both the size of the deficit and a plan to fund this.

As reported earlier in the year, we expect the latest valuation to show the actual deficit to be announced at around £10 billion.

We also anticipate that in the event of an agreement being reached between the company and the Trustees to fund the deficit, the Independent Pensions Regulatory Body will take a view as to the sustainability of any funding arrangement.

Furthermore, given the size of the likely deficit and the fact that the Government is the sole shareholder of the Royal Mail Group, it is inevitable that the Government will be called upon to be part of any solution.

CWU Policy

In the last couple of years the Union has continually pressed all stakeholders, including Government, to recognise the need to address the pension problem within the Royal Mail Group. The cornerstone of our policy has been to call for an extended 40 year repayment schedule, alongside what is known as a Government Crown Guarantee. This would secure our members' existing and future pension arrangements without further detriment to benefits, whilst at the same time transform and stabilise the company's finances both now and in the future.

Next Steps

The pension deficit is soon bound to be in the public domain. The Government will take the opportunity to intervene and insist that pensions is again linked to other recommendations in the original Hooper Report and then use this link to push forward privatisation.

The Union will continue to call for a Government led solution, as set out in our above mentioned policy and strongly make a public case that this can be resolved without the need for privatisation or legislation.

Further meetings will take place with Government, Royal Mail and the Trustee Board. We will keep you informed of further developments.

Billy Hayes Dave Ward

General Secretary Deputy General Secretary (P)

EXTRACTS FROM CWU PENSION DOCUMENT ENTITLED

“TIME TO DELIVER”

PUBLISHED IN JANUARY 2010

SUMMARY

? The Hooper review of postal services concluded that Royal Mail's pension deficit is a significant constraint on the business and poses a threat to the universal service. It argued that the best long-term solution would be for it to be managed by central government.

? The government's decision not proceed with the Postal Services Bill has meant this vital pension reform has been shelved. This position is untenable. The government must take responsibility for the deficit if the industry is to succeed.

? Members of the Royal Mail Pension Plan have contributed to improving affordability of the scheme through the reductions in their benefits introduced in 2008.

? Royal Mail is currently paying £280m each year to service the deficit alone. Adam Crozier has suggested that the deficit may have tripled to £10bn at the latest valuation. This will mean Royal Mail is unable to make the revised necessary level of repayments.

? Lord Mandelson has recognised that the government has a moral obligation to fund the deficit, but he suggests the public would not accept this argument without being assured of the future transformation of Royal Mail.

? The government must show political leadership, explain its moral obligation and act upon it.

? Debate around the Postal Services Bill shows that all parties agree that the pension deficit must be tackled if the company is to have a future.

? The decisive issue is not ‘modernisation', ‘transformation' or ‘EU competition law'. The key is whether the government has the political will to honour its obligation to the industry and the workforce.

? There are a number of ways the pension deficit could be dealt with. These include, but are not limited to: an extended repayment period; a ‘crown guarantee'; or, direct repayments.

? The deficit can be dealt with under existing legislation. The Postal Services Bill offered only one particular route. Avoiding legislation would mean the deficit could be dealt with quickly.

? The 2009 Labour Party conference unanimously passed a motion calling on the government to take on its responsibility for the deficit and to resolve the matter immediately following conference.

? It is now time for the government to act. It must take on responsibility for Royal Mail's pension deficit.

FINDING A SOLUTION

61 One of the most important conclusions that can be drawn from the debate around the Postal Services Bill is that all parties agreed that the pension deficit has to be addressed if the company is to have a future.

62 Now that the Bill is history, it is vital to act upon the pensions deficit. Current deficit payments are around £280m per year over and above the normal pension payment. If the deficit is the estimate offered in the House of Lords debate – £6bn – then the company faces doubling its payments. If the estimate is in the region of £10bn suggested by Adam Crozier in a Sky News interview on the 22 September, then the company faces its repayments being tripled. Either case is unsustainable. It is therefore crucial that the deficit is addressed as quickly as possible.

63 The CWU believes that the decisive issue on this is not ‘modernisation', ‘transformation' or ‘EU Competition Law'. The key is whether the government has the political will to honour its obligation to the industry and the workforce.

64 If the will is there then there are number of ways to resolve this problem. These could include: agreeing a much extended repayment period which is long enough to allow the industry to function; providing a Crown guarantee on the deficit; or, direct government repayments to the fund. Doubtless there are other methods the government could employ once it chooses to do so.

65 It is important to stress that the deficit can be dealt with under existing legislation. The Postal Services Bill offered a particular route to deal with the deficit at the same time as Royal Mail was being legally restructured. This was convenient for the government, but not essential. After the Bill, the issue remains as important as ever. Avoiding, if possible, legislation means that the matter can be dealt with due speed.

66 Whatever the method finally chosen by government the issue of European Commission will have to be addressed. In the debates around the Bill the government confirmed that it had had preliminary discussions with the European Commission. No amount of questioning in the debates, or direct to Ministers outside the debates, was able to draw out how the Commission had responded. But the fundamental view presented by government spokesperson was that a ‘transformation' of the industry is essential to win the Commission over. As pointed out earlier, this is not identical to privatisation, or exclusively linked to it.

67 The fact is that Royal Mail have been undergoing a series of restructuring initiatives since 2001 in parallel to a liberalisation of the postal market. It is also true that the current ‘modernisation' negotiations between Royal Mail and the CWU amount to a further transformation, or restructuring, of the industry. It is only necessary for the government to marshal the arguments in this case in anticipation of addressing the Commission in future.

68 One way of achieving this would be the proposal summarised in Annex A. This has been prepared for the union by Thompsons Solicitors. Further proposals can be found in the annex produced for the union by Hilary Salt, see Annex B. We believe there are other routes which could be examined, once the government demonstrates the will to resolve the problem.

69 At the Labour Party Conference 2009, the following emergency motion was carried unanimously: “Conference notes that, in an interview screened on Sky news on the 22nd September, Adam Crozier, Royal Mail's CEO, suggested that Royal Mail's pension deficit may have reached £10bn. The Trustees of the scheme met on Thursday, 24th September, but did not announce the level that the deficit had actually reached. Conference recognises that it is vital to achieve an early end to this destabilisation of the industry which could only alarm postal workers, and customers of the service. Conference therefore calls upon the Government, as sole shareholder, to take on its responsibility for the deficit and engage with all the stakeholders to resolve this matter immediately following Conference”.

70 To date the government has yet to act upon the decision of the whole Party. Yet Conference was clear on the urgency of this issue – it wanted to ‘resolve the matter immediately following Conference'. All that now remains is for the government to act on this in line with this generally understood obligation to do so.

FIRST ACTUARIAL – DEALING WITH THE DEFICIT

Detailed is a package of measures that taken together will enable a pensions solution without legislation being required. The package covers the following points:

? The Government should contribute to the scheme as the Trustees required. The Government should abide by the standards of funding it has created. It should rise to the funding requirements of the RMPP in the same way as it requires of the private sector.

? The UK's funding standards derive directly from the European Union Directive 2003/41/EC, generally known as the Pensions Directive. The Government, as sole owner of the business, should ensure that contributions to the RMPP are sufficient to comply with the Pensions Directive.

? Postcomm should make allowances for sufficient deficit reduction contributions in its next price and service quality review, which is imminent. Postcomm should not frustrate the requirements of the law on scheme funding by making insufficient allowance for deficit contributions in its price controls. Postcomm has a statutory duty to ensure that the Royal Mail has sufficient financial resources to finance its regulated activities, and providing for the pension scheme is a part of that.

? The Government can and should create a Crown guarantee by which the State meets any deficit in the pension scheme if the sponsoring employer becomes insolvent. This would be analogous to a parent company providing a guarantee to a wholly owned subsidiary company. More directly, the Government could provide a Pension Protection Fund style of contingent asset to the RMPP. Again, the Government should apply to itself the standards of conduct it expects of the private sector.

? A suitable investment strategy to be pursued with the Trustees.

? The introduction of a 40 year repayment schedule to cover the deficit recovery, as allowed for in the current Trust Deed and Scheme Rules.

First Actuarial are continuing their work on the solutions detailed above

INTRODUCTION OF NEW BASIC PAY SUPPLEMENTS

We can confirm that all the new basic pay supplements agreed as part of the Business Transformation 2010 and Beyond National Agreement will be implemented as part of individual employee pay on the 11 th June.

The supplements due are as follows:-

•  Delivery £20.60 per week.

•  Mail Centres £8.00 per week. Mail Centre employees will also receive a £75 lump sum (pro rata for part time employees) as part of the winding up arrangements from the old productivity scheme called ESOS.

•  Distribution £8.00 per week. Distribution employees will also receive a £75 lump sum (pro rata for part time employees) as part of the winding up arrangements from the old productivity scheme called ESOS.

•  RDCs £11 per week.

•  Walk Bundling Centres £11 per week.

•  MDECs £8.00 per week. MDEC employees will also receive a £75 lump sum (pro rata for part time employees) as part of the winding up arrangements from the old productivity scheme called ESOS.

•  HWDC £20.58 per week.

For delivery employees we have attached a pay schedule that explains how the previous door to door payments and early shift payments will be integrated into the new basic pay supplement.

Where individual members have enquiries relating to their specific pay, in the first instance, these should be pursued locally or alternatively by contacting the appropriate Royal Mail HRSC contact centre. Telephone and email contact details for the HRSC contact centre are printed on the reverse of individual members' payslips.

The Union and Royal Mail will continue to monitor the situation to ensure that employees
receive the supplement they are due.

Any operational issues associated with these changes will be dealt with by the appropriate
national officers in subsequent communications.

Any enquiries on the content of this LTB should be address to the DGS (P) Department.

Yours sincerely

Dave Ward

Deputy General Secretary (P)