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You can find the current article at its original source at https://www.theguardian.com/business/nils-pratley-on-finance/2017/oct/03/royal-mail-dispute-christmas-strike-pensions
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| Royal Mail looks set to deliver a long and bitter dispute | Royal Mail looks set to deliver a long and bitter dispute |
| (21 days later) | |
| Sir Vince Cable, business secretary in the coalition government, was right about Royal Mail being a risky investment at privatisation in 2013. The biggest risk – industrial action – is now arriving and looks serious. | Sir Vince Cable, business secretary in the coalition government, was right about Royal Mail being a risky investment at privatisation in 2013. The biggest risk – industrial action – is now arriving and looks serious. |
| Members of the Communication Workers Union (CWU) have voted overwhelmingly to strike over the company’s proposal to cut pension benefits. The City had anticipated the outcome and the shares closed on Tuesday at 384p, down 17% this year and not far above the float price of 330p. The heady post-flotation days of 600p feel like another age. | Members of the Communication Workers Union (CWU) have voted overwhelmingly to strike over the company’s proposal to cut pension benefits. The City had anticipated the outcome and the shares closed on Tuesday at 384p, down 17% this year and not far above the float price of 330p. The heady post-flotation days of 600p feel like another age. |
| The alarming part of this dispute is that Royal Mail’s room for manoeuvre looks to be limited. While the state guaranteed the pre-privatisation pension liabilities, the cost of the post-privatisation defined-benefit scheme has been deemed unaffordable after next March. | The alarming part of this dispute is that Royal Mail’s room for manoeuvre looks to be limited. While the state guaranteed the pre-privatisation pension liabilities, the cost of the post-privatisation defined-benefit scheme has been deemed unaffordable after next March. |
| That assessment looks correct, sadly. Royal Mail estimates its annual contributions would more than double from the current £400m to as much as £1bn. At a business generating £420m of free cash flow, something has to give. | That assessment looks correct, sadly. Royal Mail estimates its annual contributions would more than double from the current £400m to as much as £1bn. At a business generating £420m of free cash flow, something has to give. |
| The dispute, then, is about what replaces the current arrangements. Royal Mail has made three offers with the aim of keeping contributions at about £400m. All have been rejected. The last proposal involves offering the 88,000 members of the defined-benefit scheme either a “cash balance scheme” that pays a guaranteed lump sum on retirement or the opportunity to join a conventional contribution scheme. | The dispute, then, is about what replaces the current arrangements. Royal Mail has made three offers with the aim of keeping contributions at about £400m. All have been rejected. The last proposal involves offering the 88,000 members of the defined-benefit scheme either a “cash balance scheme” that pays a guaranteed lump sum on retirement or the opportunity to join a conventional contribution scheme. |
| Yet it is also hard to see how CWU’s alternative idea (which also covers defined-contribution members) can be spun into a form Royal Mail’s management could accept. | Yet it is also hard to see how CWU’s alternative idea (which also covers defined-contribution members) can be spun into a form Royal Mail’s management could accept. |
| First, the annual cash cost would be about £500m, according to analysts at Jefferies. Second, the structure looks too risky from the point of the view of the sponsor: it too closely resembles a defined-benefit scheme with a heavy exposure to shares and thus volatility. | First, the annual cash cost would be about £500m, according to analysts at Jefferies. Second, the structure looks too risky from the point of the view of the sponsor: it too closely resembles a defined-benefit scheme with a heavy exposure to shares and thus volatility. |
| A negotiating gap of £100m a year – plus a disagreement over structure – is enormous, as are the stakes on both sides. The proposed cuts in retirement income for workers would be substantial in many cases – up to a third, says the CWU. | A negotiating gap of £100m a year – plus a disagreement over structure – is enormous, as are the stakes on both sides. The proposed cuts in retirement income for workers would be substantial in many cases – up to a third, says the CWU. |
| Yet Royal Mail management, with pressures on revenue from all sides, can’t stray far from its definition of a “manageable” pension cost. | Yet Royal Mail management, with pressures on revenue from all sides, can’t stray far from its definition of a “manageable” pension cost. |
| Royal Mail has not had a strike since 2009 and the postal climate is different these days. Amazon delivers one in 10 parcels in the UK and the gig economy, where they don’t do pensions like Royal Mail’s, creeps closer. In the meantime, letters volumes continue to fall. | Royal Mail has not had a strike since 2009 and the postal climate is different these days. Amazon delivers one in 10 parcels in the UK and the gig economy, where they don’t do pensions like Royal Mail’s, creeps closer. In the meantime, letters volumes continue to fall. |
| An optimist might say a settlement is bound to emerge precisely because the stakes are so high. Well, yes, in time – but a thumping 89% majority in Tuesday’s CWU ballot on a big turnout, and talk of renationalisation in the air, makes the plot difficult to predict. | An optimist might say a settlement is bound to emerge precisely because the stakes are so high. Well, yes, in time – but a thumping 89% majority in Tuesday’s CWU ballot on a big turnout, and talk of renationalisation in the air, makes the plot difficult to predict. |
| The first skirmish will be over the timing of any strike, with the company desperate to avoid Christmas. It says the CWU, under an agreement from 2013, is obliged to go to external mediation, which could take until “close to Christmas to be completed, and may be longer.” | The first skirmish will be over the timing of any strike, with the company desperate to avoid Christmas. It says the CWU, under an agreement from 2013, is obliged to go to external mediation, which could take until “close to Christmas to be completed, and may be longer.” |
| This dispute could become very long and bitter. Royal Mail has fallen out of the FTSE 100 index. Prospects for a quick return are poor. | This dispute could become very long and bitter. Royal Mail has fallen out of the FTSE 100 index. Prospects for a quick return are poor. |
| Fidelity should spell out how it will pay for performance | Fidelity should spell out how it will pay for performance |
| Now that the giant BlackRock is driving its passively-managed juggernaut across the investment landscape, active fund managers are obliged to contemplate their role in life. | Now that the giant BlackRock is driving its passively-managed juggernaut across the investment landscape, active fund managers are obliged to contemplate their role in life. |
| Some, like Aberdeen and Standard Life, are combining in search of cost savings and smarter technology to combat the appeal of cheap tracker funds. | Some, like Aberdeen and Standard Life, are combining in search of cost savings and smarter technology to combat the appeal of cheap tracker funds. |
| Here’s a different solution from Fidelity, the £233bn investment house: it will charge investors less when its funds underperform their benchmarks, and charge more when they do. | Here’s a different solution from Fidelity, the £233bn investment house: it will charge investors less when its funds underperform their benchmarks, and charge more when they do. |
| It’s not an original idea since it is borrowed from the land of hedge funds. But, for a mainstream manager with a big retail following, it’s fresh. Fidelity calls the sliding scale a “fulcrum fee” and one can understand the logic – it feels clean to pay active fund managers by results. | It’s not an original idea since it is borrowed from the land of hedge funds. But, for a mainstream manager with a big retail following, it’s fresh. Fidelity calls the sliding scale a “fulcrum fee” and one can understand the logic – it feels clean to pay active fund managers by results. |
| There’s just one problem: Fidelity didn’t bother to say what the base and success fees under this new model will be. The details for all 400 funds are still being worked out, it says. | There’s just one problem: Fidelity didn’t bother to say what the base and success fees under this new model will be. The details for all 400 funds are still being worked out, it says. |
| In that case, don’t talk about “a significant announcement”. The punters want to know what they’ll be paying. Until you tell them, it’s impossible to judge if this is a revolutionary moment for the industry, or just window dressing. | In that case, don’t talk about “a significant announcement”. The punters want to know what they’ll be paying. Until you tell them, it’s impossible to judge if this is a revolutionary moment for the industry, or just window dressing. |
| Ryanair row gives tax probe new wings | Ryanair row gives tax probe new wings |
| Michael O’Leary will be satisfied. Despite the chaos of cancelled flights, Ryanair carried 11.8 million passengers in September, up 10% on a year ago. So far, so good. | Michael O’Leary will be satisfied. Despite the chaos of cancelled flights, Ryanair carried 11.8 million passengers in September, up 10% on a year ago. So far, so good. |
| But here is one way in which the cancelled flights may cause complications: more people want to know about your business model. | But here is one way in which the cancelled flights may cause complications: more people want to know about your business model. |
| As the Guardian reported today (Tuesday 3 October), Ryanair pilots are being investigated by HM Revenue & Customs over their complex employment structures. | As the Guardian reported today (Tuesday 3 October), Ryanair pilots are being investigated by HM Revenue & Customs over their complex employment structures. |
| HMRC’s inquiries, it should be said, started a couple of years ago. But the taxman’s desire to know everything about the contracts will only be deepened after the events of the past few weeks. | HMRC’s inquiries, it should be said, started a couple of years ago. But the taxman’s desire to know everything about the contracts will only be deepened after the events of the past few weeks. |
| Royal Mail | Royal Mail |
| Nils Pratley on finance | Nils Pratley on finance |
| Financial sector | Financial sector |
| Ryanair | Ryanair |
| Airline industry | Airline industry |
| Pensions Industry | Pensions Industry |
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