Government to take over Royal Mail pension scheme deficit from next month

In addition, the Government will provide the operator with a “restructuring aid” package valued at over £1 billion, which should enable the national operator to eventually be sold to a private investor.

In his 2012 Budget speech, Chancellor of the Exchequer George Osborne confirmed that the Treasury would put the scheme’s £28bn assets towards its national debt. The scheme’s liabilities, worth an estimated £37.5bn, will be absorbed by the State.

“The transfer of the £28bn assets from the Royal Mail pension fund to the Exchequer will free it from its crippling pension debts, ensure the pensions of hard-working staff are paid and help to bring in new private sector investment,” Osborne said in his speech.

Public sector pensions expert John Hanratty of Pinsent Masons, the law firm behind Out-Law.com, said that the Commission's announcement freed the way for the Government to increase its public service pension liability by a net amount of "some £9.5 billion".

"Mr Osborne clearly see the acquisition of the deficit as a reasonable price to pay for releasing £28bn of assets to the Treasury which will, we are told, be used to pay down current Government debt, but the £9.5bn deficit will become an unfunded public pension liability of £37.5bn once the assets have been distributed but the liabilities remain," he said.

The Commission found that Royal Mail was liable for far higher pension costs than its private sector competitors as a result of its previous legal monopoly, which ended in 2005. The service retains an obligation to provide a universal service and to allow customers and other postal companies to access its national network on a non-discriminatory basis.

Competition Commissioner Joaquin Almunia said that it was “crucial that incumbent operators neither enjoy undue advantages, nor suffer from structural disadvantages” in comparison to competitors. “The relief of excessive pension costs and the restructuring aid approved today will help ensure this balance for Royal Mail and its competitors,” he said.

However, John Hanratty pointed out that the Commission had made it clear that the Government was only able to relieve Royal Mail of costs which were "in excess of the level of pension payments made by comparable companies in the UK" to ensure that the Royal Mail obtained no unfair competitive advantage. The Commission prohibits member states from granting advantages or incentives to particular companies unless they can be justified for general economic development reasons in order to ensure there is fair competition within the 27-country bloc.

"How this is to be measured in the notoriously complex world of pension funding calculations will have many scratching their heads," he said.

Postal Affairs Minister Norman Lamb said that the decision did not pave the way to Royal Mail being sold "overnight".

"We have always been clear that further modernisation by the company and a period of stability under a new regulatory framework, along with state aid approval, are needed before we can move forward with a sale," he said. "However, this decision is a fundamental step towards achieving that goal."