Royal Mail boss paints gloomy picture as pension costs soar

Royal Mail has warned that its pension costs could soar to £1bn a year because postmen and women are living longer, potentially pushing the organisation into bankruptcy.

Chairman Allan Leighton yesterday disclosed that an actuarial review of its pension fund, due for completion in March, could increase the deficit in the scheme by another £2bn to £6.25bn, because of new assumptions about life expectancy.

This would require the company to pay £600m a year into the fund to close the shortfall over a 10-year period along with £100m in interest charges, in addition to its normal pension contributions of £300m.

Leighton said the pension contribution would then be twice the £500m in cash the company currently generates, requiring it to double its profits to stave off collapse.

Asked what would happen if the government did not agree to shoulder some of its pension liabilities and if it was not allowed to raise stamp prices further, Leighton said: “Then the deficit could bankrupt us.”

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