The Government’s pension stealth tax

virgin stagecoach.jpg

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.

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

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to The Government’s pension stealth tax

  1. Derek Scott says:

    As you know, Henry, I chaired the Railways Pension Scheme between 2007 and 2014 and spent a total of 18 years on its trustee board.

    The pensioner members at the time of privatisation did not give up their gilt-edged guarantee, and the scheme’s 1994 Pensioners section has a Crown guarantee and pays no PPF levy as a consequence.

    The other sections of the scheme are shared cost, so when regulators or governments wish to assert contribution increases these on the face of it have to be shared 60% by the employers and 40% by the active members. You mentioned to me RMT’s Mick Cash’s comments on Radio Four’s Today programme on April Fool’s Day from about 6:16 am onwards, and I encourage interested parties to listen to that interview on the BBC’s i-archives.

    Henry, you raise an interesting point about what the Trustee should do if being asked to administer the transfer of a company under the control of the Secretary of State, such as the current LNER franchise, back to the private sector under re-franchising from 2020 or whenever.

    The successful, “compliant” bidder for the East Midland Trains franchise announced yesterday is Abelio, a subsidiary of Nederlandse Spoorwegen, a state-owned company. When Sir Richard Branson blogged yesterday about being unwilling to sign “blank cheques” for pension costs, perhaps he was highlighting a difference between state-owned businesses and governments which frequently it seems write blank cheques for things, and more cautious, private sector businesses which tend to be reluctant to do so?

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