ROYAL MAIL’S pension deficit could soar by £2 billion to £6.25 billion and cost the group almost £1 billion a year — more than double its cashflow, it has been warned.

The postal group could be forced to shoulder the increase when its pension scheme, Britain’s biggest by membership, is reviewed by actuaries next March, its pension trustees said. They fear that that the liabilities and deficit could soar because of new mortality assumptions.

Royal Mail has told Postcomm, the postal regulator, that its next pricing plan, which is due to be unveiled in the next few days, could help it to recoup pension costs. But the regulator has indicated that the Government, as the sole shareholder that has benefited from pension “holidays”, should share some of the responsibility for the deficit.

The Government, however, said this week said that it could face problems with state aid regulations if it tried to pay into the pension scheme. Allan Leighton, chairman of Royal Mail, complained that it was caught in the middle of a game of tennis between the regulator and the Government.

Mr Leighton said that solving the pension deficit and a need for £2 billion investment were crucial to the organisation’s future. “This is the tipping point. This is the moment of time that people have to decide what they want from Royal Mail,” he said.

Dave Ward, deputy general secretary of the Communication Workers Union, said: “Royal Mail workers’ future security depends on the viability of their pension scheme. Both the organisation and the Government have an obligation to address the deficit.”

Royal Mail announced a 20 per cent jump in half-year operating profits to £159 million. The group also said that the director in charge of the post office network was leaving. The departure of David Mills comes after another year in which the counter network has failed to break even.

For the six months to the end of September the Post Office lost £57 million, compared with a loss of £58 million in the same period last year. Royal Mail’s rise in overall profits was boosted by an 87 per cent jump in operating profit to £43 million at its European parcels business, GLS.

The robust headline figures for the group come at an awkward time as the regulator prepares the final pricing plan. They were also tempered by a warning that mail volumes were declining in the first substantial downward move for 25 years. First-class mail dropped 4.2 per cent; second-class fell 3.8 per cent; and mailsort declined 7.1 per cent. Adam Crozier, the chief executive, said the fall reflected a drop in confidence in the economy.

Royal Mail also that said it was losing more business to rival operators. Competitors handling business post and who use Royal Mail’s “last-mile” facilities to deliver post, will put one billion items into the network by the end of the year. Mr Crozier said this contrasted with the regulator’s expectations that there would not be one billion items handled each year under the “access” agreements before 2010-11.

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