UK postal provider Royal Mail has reported an 86% drop in first half profits following a massive increase in its pension deficit. The troubled group has said it is now hoping to close its final salary pension scheme to new employees in a bid to stem any further growth of the current GBP6.6 billion deficit.
Profits during the period between April and September 2006 dropped to GBP22 million, compared to GBP159 million during the same period a year earlier.
The pension deficit increased by GBP1 billion, as servicing costs grew from GBP280 million to GBP730 million during the last year. The postal operator currently employs around 190,000 workers, 167,000 of which pay into the pension scheme.
Chief executive Adam Crozier said the costs incurred by servicing the pension fund has led to a drop in competitiveness of the company, which means it will now be forced to raise the cost of its products and services to fund the scheme.
To ensure the problem does not worsen, Royal Mail has chosen to start a six month consultation period to decide whether to replace the current scheme for new staff.