Select committee turns focus to Railways Pension Scheme deficit

The letter comes on the back of transport contractor Stagecoach’s disqualification from three government rail contracts due to the extent of its pension liabilities under the RPS.

Unions have also waded into the debate, with the RMT threatening industrial action if pension provision is undermined.

The regulator estimated the RPS’s deficit at £7.5bn in June 2018, according to a letter seen by several news outlets last week, up from just £4.8bn three years previously.

We’ve written to TPR to see what they’ve done so far with this mess, and what the threat of further action by them can achieve to protect pensioners

Frank Field MP

In its shareholder announcement last week, Stagecoach said the scheme’s viability is further threatened by the withdrawal of support by the Department for Transport.

“Without ongoing government support for the long-term funding of railway pensions, The Pensions Regulator has indicated that an additional £5bn to £6bn would be needed to plug the gap in train company pensions,” chief executive Martin Griffiths said.

Field takes aim at deficit

In a letter to the regulator’s chief executive Charles Counsell, MP Frank Field acknowledged the regulator’s ongoing investigations into underfunding of pension liabilities in the rail sector, but asked that the watchdog confirm the extent of the RPS deficit and outline “TPR’s actions and future plans to work with firms and the Department for Transport to address this shortfall”.

Commenting on the letter, he added: “While the staggering, parlous state of the Railways Pension Scheme is anything but welcome, the one positive here is the clear signal from government to industry of further, heavy consequences for so badly mismanaging a pension scheme.

“In the wake of Carillion it is encouraging to see government now taking public service provider pension schemes more seriously. Today we’ve written to TPR to see what they’ve done so far with this mess, and what the threat of further action by them can achieve to protect pensioners.”

A spokesperson for the regulator said TPR will reply to Mr Field’s letter in due course, and added that the watchdog is “working closely with the scheme trustees, Rail Delivery Group and the Department for Transport to ensure the best possible outcome for pension scheme members”.

“Part of this work is to ensure the scheme is adequately funded so that members receive the benefits they expect. We are not able to comment further,” the spokesperson continued. The regulator has declined to comment on the extent of the RPS deficit.

Higher contributions likely

Much of the detail surrounding the RPS is shrouded in opacity, but train operating companies are likely to be asked to pay larger deficit repair contributions on new contracts in response to the scheme's underfunding.

The regulator's recent annual funding statement pushes employers towards shorter recovery plan lengths in most situations, and a source briefed on train operating franchise awards indicated that the Department for Transport is following the watchdog's views on risk. They added that the government is unwilling to take any more risk itself than it currently does - a risk sharing mechanism means the department shares in some upside and downside when funding requirements change.

The issue is also highly politicised, said Kate Payne, partner at Arc Pensions Law. She noted that most employers in the RPS are in a shared cost scheme, where members must meet 40 per cent of the costs.

"That's a nuance that's probably meant that people are maybe nervous to just simply say 'we'll just put up the contribution rate', because under the rules it's shared," she said. "This is very political."

Furthermore, employers have never been able to change the system of benefit provision for older rail workers, as has been done with the shift of public sector schemes to career average, because workers must receive the same benefits as they did in public service post-privatisation in 1993.

RMT's general secretary Mick Cash has also waded into the debate. In a speech to the Scottish Trades Union Congress later on Tuesday, he will say: "The fiasco over Stagecoach and Virgin being banned from the franchise lottery because they refuse to underpin ‎their pension obligations has laid bare the chaos of privatisation and has left RMT members, including many in Scotland, facing a period of deep uncertainty. That scandalous situation has to be brought to an end as a matter of urgency."

"RMT has made it clear that any threat to our members pensions, jobs or working conditions as a result of a politically-driven, privatisation crisis they are not responsible for will be met with co-ordinated and robust action," he will add. "In Scotland there is no excuse for allowing the privatisation racket to continue any longer. Scotrail should be taken into public ownership and run as a public service in the interests of safe, secure and reliable services for all. The Scottish political establishment need to face up to both that reality and their own obligations and take the decisive action required."