Trustee

The Trustee of the Plan is a trustee company: Royal Mail Pensions Trustees Limited. The board of directors of the trustee company comprises eleven trustee directors, of whom one is an independent chair, four are nominated by the Unions, one is elected by the Plan's pensioners, five are appointed by Royal Mail Group of which two are independent trustees and three are selected from Company management. The trustee company is legally responsible for ensuring that the Plan is run properly and that members' accrued benefits are safeguarded.

Royal Mail Group decides the level of pension benefits it wishes to offer to its employees, including the level of pension benefits that it considers appropriate for its business. Benefits are set out in a legal document called the Trust Deed and Rules. This governs how the Plan is set up and how benefits are calculated. Amongst other things, the Trustee has a duty to make sure that the Plan is run according to the Trust Deed and Rules and that benefits are paid correctly and on time.

The Trustee is not involved in setting the Group's pension strategy. However, any changes to the Trust Deed and Rules require the Trustee's agreement.

The Trustee was not part of the formal legal consultation process, which has been between RMG and its employees. However the Trustee is required to satisfy itself that the consultation has followed correctly the procedure laid down in the relevant legislation. The legal advice received by the Trustee indicates that this process was legally correct.

As RMG has published its decision on the changes it wishes to introduce to the Plan, the Trustee is now considering them in detail. The Trustee has to consider the interests of all Plan members. A key concern will be the security of the benefits that have been built up by service to date.

The Trustee will, among other things, check with its advisers:

• That the proposals comply with the legal protections which prevent reductions in past service benefits
• The effect of its decision on RMG's business
• Whether the Plan can be administered in accordance with the changes

A thorough financial health check is carried out every three years, with annual updates in between. The Trustee may also carry out a check if there are any significant changes affecting the Company or the Plan.

We would like to emphasise that all the people involved in managing the Pension Plan have worked hard to ensure that it is properly run. There are many billions of pounds in assets in the Plan and to date the benefits have been paid to members as they fall due. This is expected to continue in future.

You can find out more about the Trustee in the Pension Plan's Annual Report & Accounts, which can be downloaded from the pensions website:

www.royalmailgroup.com/pensions.

You can also call the existing Pensions Helpline 5456 4545 (Postline) or 0114 241 4545 (external) or email Pensions Helpline on Lotus Notes to request a copy of the Report.

Details of the Plan's investments, including where they are held and how they have performed over recent years, can also be found in the Annual Report and Accounts.

An audit is carried out every year by professional auditors appointed by the Trustee. The Plan's Report and Accounts, which include statements from the auditor, are on the main Pensions Website.

The Trustee carries out a 'formal' actuarial valuation every 3 years, the last one being in 2006, where the deficit calculation for the ongoing funding of the Plan was £3.4bn. The accounting figure is calculated in an entirely different way and is not used for funding the Plan. The Trustee carries out annual interim valuations to check on progress in the 3 year period between formal valuations and in April 2007, the deficit calculation for the ongoing funding of the Plan was around £2.5bn. However, the deficit (which has arisen for past service) is still an extremely large figure, which Royal Mail does not expect to be able to pay off for many years. The ongoing cost of future benefits are also too high for the business to support and the changes that will be made to the Plan are necessary for the future security of all Plan members and the future financial health of Royal Mail.

This large difference in the numbers shows the volatile nature of the pension scheme liabilities. We therefore need to build a strong profitable business that can withstand such large volatility.

If the Trustee decides to agree to the changes to the Plan proposed by RMG then a Deed, amending the Trust Deed and Rules, will be signed by the Trustee and RMG to formally introduce the changes. If that happens, the Trustee will then write to all members of the Plan confirming the changes to the Plan and revised members' booklets will be issued as soon as practicable afterwards.