The Royal Mail Defined Benefit Cash Balance Scheme (DBCBS) accounting deficit has almost doubled in six months, jumping from £177m on 29 March 2020 to £344m on 27 September, according to the company’s half-year report.

The increase in deficit for the transitional scheme, which is in place until the company's proposed collective defined contribution (CDC) scheme can operate, was fuelled by a rise in the postal service’s plan’s liabilities from £907m to £1,312m, with this increase outpacing a rise in assets from £730m to £967m.

However, the firm noted that the scheme was not in funding deficit and did not anticipate that deficit recovery payments would be required.

Meanwhile, the Royal Mail Pension Plan (RMPP) and Royal Mail Senior Executives Pension Plan (RMSEPP) schemes have seen their accounting surplus decline from £3,614m to £2,950m in similar circumstances, as liabilities rose from £6,429m to £7,837m and assets climbed from £11,989m to £12,375m.

This follows a 2018/19 buy-in for the RMSEPP, which sees the purchased insurance policy listed as assets of the scheme and covers all of its liabilities, while the RMPP closed in March 2018 to future accrual in its previous form and the group makes no service contributions in respect of those liabilities.

The report added that RMSEPP trustees are considering the approach to be taken to address the issue of unequal Guaranteed Minimum Pensions in respect of the scheme, but estimated that the cost of this will not be material.

Royal Mail has been working closely with the Communication Workers Union (CWU) to build a CDC scheme for its employees in preparation for the passing of the Pension Schemes Bill.

While the CDC scheme will be accounted for as a defined contribution scheme, the Defined Benefit Lump Sum Scheme (DBLSS), which members will be enrolled into alongside the proposed scheme, will be accounted for as a defined benefit scheme with the accounting treatment expected to be similar to the transitional DBCBS.

The new arrangements will have fixed employer contributions of 13.6 per cent and employee contributions of 6 per cent, with the total annual cost of the proposed scheme expected to be broadly similar to the current costs.

A statement from Royal Mail said: “We are pleased to see the legislation that will enable our proposed CDC pension scheme progressing through Parliament. We expect the Pension Schemes Bill to pass by Christmas 2020, with further regulations to follow next year.

“Subject to these necessary regulations and authorisation from The Pensions Regulator, we can then plan for the introduction of our new CDC pension shortly thereafter. We have lobbied successfully with CWU for the introduction of CDC pensions since 2018. This demonstrates what Royal Mail and CWU can achieve when we work together.”

The group’s total ongoing pension service costs were £334m for the six-month period ended 27 September a slight increase over the £328m paid out over the same period in 2019.

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