What are we to make of the disenfranchisement of Stagecoach from rail contracts?
I am extremely concerned by this statement , reported in the Financial Times
Stagecoach said its recent bids had been non-compliant “principally in respect of pensions risk”. Mr Griffiths and others in the industry said the Pensions Regulator had been suggesting train operators would need to make increased contributions to the railway pension scheme in case the government did not fully fund it. Stagecoach said the gap could be £5bn to £6bn across the sector.
This should be read together with a second statement to be found in the FT report.
Franchise tenders expected the winner to bear “full long-term funding risk” for pensions, Stagecoach said, which it declined to. While other bidders accepted this condition, Mr Griffiths said the gap “could be very significant over the long term, that was why it was an unacceptable risk and chance to expose our shareholders to”.
On the face of it, Stagecoach are refusing to take a risk transfer from Government to the private sector of obligations to the Railways Pension Fund.
I can quite understand why Griffiths and his partner Richard Branson are crying foul. The Government are moving the goalposts – or rather making the franchisees profit-goals a whole lot smaller. That’s not fair on shareholders and it won’t be fair on passengers, who will get the pass on.
Subsequently the FT have published a second article that hints that t pension clauses in franchisee tender documents is at the Pensions Regulator’s instigation aimed to protect the PPF from another Carillion and members of the Railway Pension Fund from a weakened covenant.
The article also points out that no-one knows the current state of the Railway Pension Fund’s funding. I was struck by one reader’s comment
Unless the client (franchisee) is is able to separate out controllable risks and ring-fence and pool those, such as pensions, that are uncontrollable they’ll end up awarding contracts to the most cavalier or those with the deepest pockets rather than those best placed to deliver the service.
One question is why other bidders are prepared to take this risk, another is why members of pension funds which previously had a gilt-edged covenant should be asked to accept a covenant from a rail franchisee in the first place.
A job on the railways came with a state backed pension which was understood by everyone. This point is well made by Mick Cash, general secretary of the RMT railway workers’ union, who warned that his members’ pensions
“are not there to be used as bargaining chips in a row between the train companies and the government”.
Same with schools and universities
Having allowed membership of the teacher’s pension scheme on benign contribution terms, Government is now turning up the heat by requiring schools and universities to pay a whole lot more to participate in the teacher’s pension scheme. For those footing the bill today, it’s a stealth tax on students and parents tomorrow.
Universities UK says the Govt decision to not support the increase in employer contributions to the Teachers’ Pension Scheme as a ‘stealth tax’.
UUK says the move represents annual costs increases of a circ £142 million for around 70 post-92 universities across the UK from Sept.
— Josephine Cumbo (@JosephineCumbo) April 10, 2019
This is fine so long as this was always baked into assumptions but it wasn’t and the increased costs are not budgeted for and will become a stealth tax paid by students and parents.
Sympathy for those enjoying higher and private education may be less than for railway workers but the same issue applies. The Government is the insurer of last resort for millions of pensions and the deal between the pensioner and the Government is based on there being a state promise backing the retirement promise.
I don’t get the policy statement that backs up this change in the Treasury’s pension strategy. I don’t see any of these changes in the way the private sector is being to take on public sector pension obligations as a matter of public debate.
I have no particular candle to burn for Stagecoach, other rail franchisees , private schools or universities, but I don’t see why people’s pensions and livelihoods can be put at risk so that the public purse is protected from making good on public pension promises.
Stop me if I am missing something, but I sense that there is something not quite right in all this . I feel like Martin Freeman