The Post office Pension fund – why not another £7 billion of taxpayer obligation?

In this new world where the all powerful state can take on any financial obligation, I guess nationalising the Post Office pension fund deficit is small beer. After all, a one percent loss on the gross assets of RBS is three times the size of the pension fund obligation we read we are about to take on.

For those of us who still think governments too have t to control what they borrow, spend and guarantee, it is yet another large sum that taxpayers, sometime, are going to have to pay for. Pensions have become shrouded in jargon and regulatory complexity. Actuaries and experts exchange complex sums, attempting at any given date to come up with a figure for the “deficit”, the shortfall of money in the scheme to meet its future liabilities.

These deficit figures can be very volatile. They are the product of two very difficult forecasts. The expert needs to work out how much all the pensions are going to cost. That is a moving feast, as no-one knows for sure how long the pensioners will live, or how much their pensions will increase by in an inflationary world. Then the expert needs to decide how much the fund will make on its investments, an even more difficult matter to estimate.

Trustees responsible for the schemes are then faced with the issue of how they will fill in the deficit, if that is what their experts tell them they have at any given time. There are three ways of “correcting” a deficit, if all the assumptions in the deficit calculation are accepted and do not change over time. The trustees can improve the investment returns, above the Actuarlial assumptions in a way which persuades the Actuary. The Trustees can obtain more contributions from the company and the members. The Trustees can agree lower benefits with the members.

If the government is planning to take on the Post Office pension fund, it should first reach agreement with all involved on how it is going to tackle the deficit. Is the future semi privatised body going to increase employer contributions? Are members going to accept higher contributions or lower benefits? Can the investment strategy be improved? Or is the long suffering taxpayer simply going to pay whatever it takes to fill the present deficit, with no guarantee that there might not be another deficit in a few years time? If they go on getting the investment strategy wrong, or offer more generous benefits, will the taxpayer be expected to stump up?


  1. Brian Tomkinson
    December 16, 2008

    It is truly frightening how much debt this government is prepared to burden onto the already overtaxed British taxpayers. How will this enormous deficit be paid? For some time I have had a fear that this will be done by printing money. This fear increases daily as I read certain commentators advocating such a measure and it was even mentioned by Vince Cable in the Commons yesterday so by now it will be the accepted wisdom and obviously the right thing to do! (I’m joking of course). Isn’t this the road to absolute ruin as happened in Weimar Germany and Zimbabwe to name but two? I should welcome your views.

  2. MarkE
    December 16, 2008

    Are there any underlying investments on which returns may be improved for Post Office pensioners, or is the Post Office pension scheme just another Ponzi scheme like National Insurance or the scam we’ve just seen, run by the wonderfully named Madoff?

    Reply: The PO scheme is certainly not a Ponzi scheme, and Mr Madoff has not been prosecuted or found guilty.

  3. Ian Jones
    December 16, 2008


    I dont think the Government cares about the £7bn deficit, netted off against the £22bn in the fund and its a nice reduction in the net debt of the Government for 2008/9. Accounting tricks which the taxpayer ends up footing the bill for so Labour can spin their way out of their mess.

  4. adam
    December 16, 2008

    Yea the Post Office stole their pensions, i dont know if anyone even got in trouble for it, probably not.
    Remember seeing on the news a few years back people who had their pensions stolen were protesting and the government actually said they would compensate them, maybe that was a different bunch of people.
    Digby Jones on the beeb last week said that Gordon had “no option” but to get further into debt, thats the kinda people who are looking after the country. So, Hey, why not? Lets just bail everyone out with their own money.
    Makes as much sense as anything else Labour come out with.

  5. Neil Craig
    December 16, 2008

    The elephant in the room of pensions is that for at least the last century lifetimes have been extending by about 1 year for every 4 that passes & I strongly suspect that some time in the next 20 years some key to the aging process itself will be found.

    Actually this is one of the elephants in the room for all human society which probably explains why aging research gets £10s of milliions in funding worldwide while AIDS get billions.

  6. Bill Quango mp
    December 16, 2008

    The unions would not budge on an end to final salary schemes for new members. this led in part to the big strike which really damaged the Royal mail’s profits.
    if the unions won’t move on future members, and the CWU has just handed out a tidy sum to Mr Brown to bail him out, what possibility is there of any reform or even discussion of change to the pension system.

    And in all fairness you cannot blame the workers. they have been told that they will be getting “X” pension for “Y” contributions for years. it would be wrong to change that now..
    But future members..that must change. And it must change for every Public sector worker.

    including MP’s
    {sorry john}

    1. Ian Jones
      December 16, 2008

      Why should those “lucky” enough to be working there now still get to contribute to the same gold plated schemes? They need to be closed off and moved to defined contribution plans. Obviously they keep the benefits accrued to date!

  7. mikestallard
    December 16, 2008

    It is becoming more and more obvious that the top priority of this government is to bribe the voters for the coming election, and never mind the economy. So I totally agree with you: they do not even bother (so far as we know) to try your three ideas which might well get some pension money out of the Post Office itself.
    That said, I wonder if Lord Mandelson, recently returned from a similar job in Brussels, which took a large part in introducing rules which hobbled the PO, is pulling strings in the background with some chums from across the Channel? Unfortunately, because it is all so secret over there, we shall never know.
    Meanwhile the Scottish Banks both invested heavily in Mr Merdle.

  8. Acorn
    December 16, 2008

    Why would this government bother to cover the deficit; it doesn’t bother to cover the rest of the public sector deficit. The assets of the PO pension fund will just be used to cover the Treasury fiscal deficit.

    As far as I can understand, the governments pension paying company, is shelling out £30 billion a year in current public sector pensions. Over a third of this comes directly from the taxpayer. If you capitalize that at about 3.8% – the rate you would get for an RPI inflated annuity at age sixty – that comes to a pension pot of £800 billion. Adding the future liabilities for the now 5.8 billion public sector employees must bring it to about £1100 billion.

    At some point, reality will have to kick in. The public sector can’t go on collecting £3 of benefit for £2 of contributions. Public sector business units at central and local government levels, must be made to cover the whole cost of their pension liabilities. I suspect they will not be so keen to continue their final salary schemes, just like the real world private sector.

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