Pension schemes that link retirement incomes to final working salaries have made generations of pensioners very comfortable. Yet final-salary pensions are expensive and, according to latest reports, so costly that the Royal Mail may be forced into liquidation by pension fund trustees unless the arrangements are reformed.

Managers of thriving corporations balk at promises to fund generous final-salary linked pensions. The Royal Mail, sadly, is manifestly not thriving. Dwindling queues at post offices have prompted the Government to sanction the closure of a fifth, or 2,500, of the total. Profits across the organisation are slumping. Industrial action is an almost constant threat. Now the posties threaten a walk-out over pensions. Six months ago the complaints were about pay and working practices. Before that, there was unrest over plans to give the workers the chance to own shares in the enterprise for which they work.

Managers must be careful not to act cynically or precipitately. The decision last year to award a large bonus to Adam Crozier, the chief executive, did not help to build consensus between management and employees. It would be tempting for managers to spread scare stories in order to push through changes to pensions. But it is quite unrealistic for postal workers to expect gold-plated pension rights to appear out of thin air.

Postal workers have the chance to help themselves by helping to create a modern and sustainably profitable postal service. It means swallowing pride and sacrificing job security, above average pay rises and premium-standard pensions.

The Royal Mail must change in order to survive and may be able to compete only by embracing measures that bring some dismay to all concerned. E-mail and rival physical postal services are making life more competitive. Mechanisation will reduce costs at the expense of jobs. Even with this, Royal Mail may be able to make ends meet only if it is allowed to charge more for its services or provide fewer of them.

The status of the Royal Mail adds complexity. It is a nationalised industry held by the State at arms' length. That said, Royal Mail's foundations have grown firmer in recent years. It has won government support for funding past pension obligations, and to re-equip many sorting offices. It is hoped that changes to pay, pensions and working practices will begin to bear fruit soon.

The Government is caught between the competing arguments of customers, management and labour force. On one hand it acknowledges there is a public service role for Royal Mail. On the other it appears to appreciate that Royal Mail will be strengthened by exposure to competition and will improve if it secures its own financial future. It has not yet struck the balance in a coherent fashion.

A review of the UK postal industry, and the effects of market liberalisations brought in just over two years ago, is currently under way. It was ordered by John Hutton, Secretary of State for Business, Enterprise and Regulatory Reform and headed by Richard Hopper, the former deputy chairman of the communications regulator Ofcom. There is still too much hope, and too little expectation, that the report will make encouraging reading. A truly successful Royal Mail could at least pretend to make everyone happy some of the time. For the moment it is seems to be making no one remotely content all of the time.