The British Government takes over Royal Mail’s Underfunded Pension Fund for Short-Term Deficit Reduction

Posted by PITHOCRATES - March 18th, 2012

Week in Review

The U.S. Postal Service (USPS) is going broke.  Why?  Two reasons.  People email and text today.  Even pay their bills online.  So they’re not mailing letters.  And every piece of mail the people don’t mail is lost revenue for the USPS.  Which can be a problem in an organization that has a high overhead.  And an aging and retiring workforce.  Which brings us to the second reason.  Pensions.  Just like in Britain (see Government to take on Royal Mail pension to pay down debt by Matt Falloon posted 3/19/2012 on Reuters).

Chancellor George Osborne will use a 28 billion pound ($44.36 billion) asset transfer from taking on the Royal Mail’s pension fund to pay down government debt next year, a government source said on Sunday.

The transfer of the state-owned mail company’s pension scheme – subject to European Union approval and due to be announced in next week’s budget – will reduce the government’s budget deficit next year, while the liabilities from the scheme, worth 37.5 billion pounds, will show up on the government’s accounts across the next two decades as they are drawn on by scheme members…

In the long run, however, there will be an overall cost to the Treasury from the transfer because the scheme’s liabilities outweigh its assets.

The Royal Mail is no different than the USPS.  People are emailing, texting and paying their bills online in Britain, too.  Which means neither 20th century postal service can make it in the 21st century.  They both need to reinvent themselves.  And fast.  But the LAST thing either nation should do is to bail out their postal service.  Not when each nation is struggling under record deficits.  For this will only delay the day of reckoning.  And make it far more costly.  Allowing greater losses to accrue.  In the face of growing pension payouts.

Short-term fixes for long-term problems is very bad policy.  It’s what we call kicking the can down the road.  It doesn’t fix any problems.  It only makes them more difficult to fix.  Burying the country under ever growing deficits.  And placing incredible tax demands on taxpayers not even born yet.   So you know the Americans will follow suit.  And bail out the USPS.  Because of late they seem to have a penchant for making bad decisions.

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