Union attacks ‘unacceptable’ hike to Railways pension contributions

TPR has told the trustees of the RPS to review the assumptions used to calculate parts of its 2016 and 2019 valuations, after taking the view that the scheme’s trustees have overestimated the financial security of companies holding former train operating franchises. Neither valuation has been signed off. 

The intervention, which was made in 2017, concerns the scheme sections covering the train operating companies, known as the “TOC sections”.

TPR wants the RPS trustee to adopt a more cautious investment philosophy and downgrade its covenant rating. The RMT is discussing alternative measures with the TOC employers.

This would push most sections from being fully funded into deficit

Mick Lynch, RMT

‘An attack on members’

In November 2017, the RMT told members that it had become aware of TPR interest in the assumptions used for valuing the TOC sections.

The regulator’s subsequent intervention meant that the 2016 valuation for the 27 TOC sections could not be signed off by its statutory deadline of March 31 2018. Joint contribution rates in the Abellio Scotrail section were unchanged beyond July 1 2018, when they had been expected to increase.

The RMT acknowledged member concerns about their pension benefits in 2019 following Stagecoach’s disqualification from bidding for three rail franchise contracts. 

“A senior [Department for Transport] official has verbally informed Stagecoach that it has been excluded from all three competitions for submitting non-compliant bids principally in respect of pensions risk,” the company announced in April 2019.

According to Stagecoach chief executive Martin Griffiths, without ongoing government support for railway pensions’ funding, TPR had indicated that an additional £5bn to £6bn would be required to plug the gap in rail company pensions.

“In contrast, the rail industry proposed solution would have delivered an additional £500mn to £600mn into the scheme. This would have provided better stability and security for members and much better value for taxpayers,” he said at the time. 

“The intervention by the regulator has undoubtedly caused Stagecoach to submit a non-compliant bid,” RMT’s then-general secretary Mick Cash wrote in a circular to members in May 2019.

“The RMT has received joint correspondence from the Work and Pensions and Transport select committees to the DfT in respect of the Stagecoach’s ban from bidding for any future rail franchises because they have refused to honour any future pensions deficit,” he confirmed. 

The RMT’s national executive committee hit out at the government’s decision to assist TOC employers with pension deficits while members were still obliged to meet the cost of their share.

“It is clear that TPR’s intervention and the DfT’s proposal to share any deficit risk with TOC employers is not just an attack on our members’ future pension rights, but also puts in doubt the long-term future of RPS,” it said at the time.

It then threatened “a campaign of co-ordinated industrial action across the rail industry to defend pensions”.

Alternative measures proposed

According to the RMT’s September 2022 circular to members, TPR believes that the RPS valuation results are incorrect, and that the funding level for each TOC section should be at least 25 per cent lower than the trustees’ estimate.

“This would push most sections from being fully funded into deficit,” general secretary Mick Lynch warned members.

The union has been advised that to meet the regulator’s expectations, the change in investment strategy could lift the average joint contribution rate by 15 per cent, from 19 per cent to around 34 per cent of section pay. 

Members on average could see their contributions rise by up to 7.6 per cent, adding that this rise would drive members out of the scheme, Lynch cautioned.

The RMT and sister unions received a presentation from the chair of the Informal Pension Steering Group, through which they meet TOC employers, outlining a series of alternative proposals intended at securing the sign-off of the two valuations and shielding members from contribution increases.

It was proposed that the normal pension age would increase from 62 to 65 for future service from February 1 2023 for all “non-protected members”.

A non-protected member is someone who was not a member of the RPS — formerly the BR Pension Scheme — before railway privatisation. Members of the BR Pension Scheme on November 4 1993 are considered “protected” and have a statutory right to remain a member of the RPS with the same level of benefits.

A “past service pensionable pay cap” aligned with the consumer price index per year would be imposed for all members, with any rises above the cap being pensionable for future service only. 

There would also be a two-year waiting period for new entrants without RPS membership. New employees would join the industry-wide defined contribution section for the duration of the waiting period. 

Finally, for the majority of members and TOC sections, increases in member and employer contributions would occur on a stepped yearly basis in consecutive years, limited at one a year for members. This would be for a maximum of four years and 4 per cent from July 2023.

For a few sections, no increase would be required. The RMT national executive committee is currently weighing up the proposals.

A TPR spokesperson said: “We are working closely with the scheme trustee, Rail Delivery Group and the DfT to ensure the best possible outcome for pension scheme savers. This work is to ensure the scheme is adequately funded and sustainable for the long term.   

“We want all workplace pension schemes, including defined benefit arrangements, to recognise the risks which relate to their scheme, and then to manage, address and mitigate them appropriately to protect their members.”