Post Office workers set to receive scheme surplus spoils

In January, the defined benefit scheme started consulting with members on a proposed decision to move from a buy-in to a buyout later this year.

This follows the RMPP trustee’s action in 2017 to agree a £453m buy-in in a Rothesay Life insurance policy for scheme members in the Post Office section. The trustee is now planning a step further by moving to a partial buyout, again through the same insurer.*

A spokesperson for the trustee explains: “Our objective in doing so is to reduce the expenses of running the RMPP, which in turn helps to protect the value of the surplus of the fund for the benefit of its members.”

Members will retain same benefits

The proposed buyout with Rothesay Life applies only to members of the RMPP scheme, which closed on March 31 2017, who were employed prior to April 1 2008. The Post Office section of the pension fund had 5,613 members at the end of March 2019.

In a letter to pre-2008 RMPP members, Joanna Matthews, chair of Royal Mail Pensions Trustees, says: “If you left Post Office employment before August 31 2019, your individual policy with Rothesay Life will provide all the benefits to which you are entitled from the RMPP.

“Otherwise, if you were employed by the Post Office on August 31 2019, the individual policy with Rothesay Life will provide you with all your RMPP benefits built up after April 1 2012.”

The only element that will fall outside the Rothesay Life policy, and will continue to be paid by the scheme, is any benefit arising from salary increases above retail price index inflation in relation to service before April 1 2012.

The last valuation shows that the DB scheme’s surplus stood at £24m on March 31 2018, with assets worth £438m and liabilities at £414m.

A subsequent funding update determined the surplus stood at £28m on March 31 2019 with assets at £455m and liabilities amounting to £427m.

Shared surplus under discussion

The scheme also confirmed that any future scheme surplus is expected to be distributed to members.

In a joint statement, unions Communication Workers Union and Unite, and the Post Office note that the company “is clear that any surplus available must be used for the benefit of scheme members, and therefore reached a formal agreement with the trustee in 2017 to this effect”.

“Consequently, the trustee will in due course consider how best to share and distribute any available surplus,” it states.

Further discussions are planned with the trustee to decide how much of the surplus can be distributed and when this should happen, and also about how and in what way this should be allocated between members.

'Win-win' situation for members

Commenting on the legal framework of this case, Penny Cogher, partner at law firm Irwin Mitchell, notes that “fully legally sectionalised schemes must be treated as registered pension schemes in their own right, and so any final surplus must be used for that section”.

She says: “While we can wonder why in 2017 the Post Office agreed that the surplus could only be used for members, it is possible that this was a requirement under the old rules of the scheme.

“In that case, it might have been sensible for Post Office to insist that this is included in member and other communications. If it wasn’t a requirement under the old rules, you wonder who was advising Post Office when they agreed to this.”

Reflecting on the move to buyout, Adolfo Aponte, director at Lincoln Pensions, argues that this is not a decision the trustee will have taken lightly.

He says: “Running on with the existing arrangement would represent additional administrative costs that could otherwise be covered by the insurer.

“Once complete, at least some of the members will be one step closer to receiving the proceeds that remain in the scheme, with the bulk of their benefits underwritten by the insurance regime.”

*This article has been updated to correct an inaccuracy as the scheme is looking to move to a partial buyout.