Royal Mail scheme members will now have their promised pensions guaranteed by the government. For all pension earned to date, the scheme will become an unfunded arrangement, paid for out of taxation, like the schemes for teachers, civil servants, NHS staff and the armed forces.
Joaquin Almunia, the European Commission's vice-president in charge of competition policy said: "In order to achieve a level playing field in postal markets, it is crucial that incumbent operators neither enjoy undue advantages, nor suffer from structural disadvantages in comparison with competitors. The relief of excessive pension costs and the restructuring aid approved today will help ensure this balance for Royal Mail and its competitors."
Commenting on the news that the government plans to nationalise the assets of the Royal Mail pension fund Professor Philip Booth of Cass Business School (http://www.cass.city.ac.uk/
The government's decision to nationalise the assets of the Royal Mail pension fund whilst taking on all future liabilities is short-sighted and dangerous. The assets will be used immediately to reduce the government's debt whilst the liabilities - made up of future pensions to workers - will no longer be funded and will have to be met by future generations of taxpayers. The liabilities will be hidden from the government's accounts.
According to the government's own figures, the liabilities are £10bn greater than the assets which stand at £28bn. However, if valued properly, the liabilities would probably be well over £20bn more than the assets. Government accounts will show a reduction in the government's national debt of £28bn whereas, in reality, the national debt will be increasing by over £20bn.
Although the government claims that it will not be spending the £28bn raised from taking over the assets because it will be used to reduce its borrowing, future governments are less likely to feel so constrained. The government would not allow a private sector company to get away with such shoddy - indeed, underhand - accounting practices.
Philip Booth is Professor of Insurance and Risk Management at Cass Business School. The Cass MSc in Insurance and Risk Management (http://www.cass.city.ac.uk/
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Cass Business School (http://www.cass.city.ac.uk/)