RDG urges DfT to act as a guarantor to pension scheme

 
Paul Plummer

 

The Rail Delivery Group has told the Department for Transport that a national rail strike and rail franchising chaos are likely unless the government agrees to act as a guarantor to the railway pension scheme.

In a letter to transport minister Andrew Jones, RDG warned that after two years’ of discussions, the pensions regulator had run out of patience with the industry to clarify funding for the pension scheme’s deficit. RDG chief executive Paul Plummer said the regulator would accept a “sustainable” solution based on gradual increases in employer and staff contributions, but only if the DfT agreed to enter a long-term risk sharing arrangement with operators. If the DfT maintains its stance that it has no responsibility to guarantee the pension scheme, the pensions regulator would inevitably assess it as facing higher risks.

He warned that the regulator could demand an immediate increase in employer and staff contributions of at least £2.6bn. RDG believes the industry and government have until the end of May to agree an acceptable way forward before the regulator could take matters into its own hands.

The pensions regulator’s patience is not unlimited, and RDG and TOC members believe that the lack of sufficient support by government would crystallise events in an unstoppable manner

“We do not write lightly to you about the importance of government support,” Plummer said in his letter to Jones. “The pensions regulator’s patience is not unlimited, and RDG and TOC members believe that the lack of sufficient support by government would crystallise events in an unstoppable manner”.

The consequences would include requirements for very significant rises in staff pension contributions, the result of which would “almost certainly be widespread industrial action with significant disruption to customers, cost and reputational damage”.

Ultimately, RDG said it could “break the scheme”.

RDG also predicted that the imposition of significant and unpredictable new funding requirements on operators meant “the ability for the DfT to let future franchises in circumstances of such uncertainty will be put in jeopardy”, and would inevitably effect the premium payments offered in any contracts that are let. In addition, Plummer said it was likely that the industry would be thrown into a protracted series of legal disputes between operators and the regulator.

 
Further coverage appears in the latest issue of Passenger Transport.

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