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15.1. When the TPE was established, two new Sections were formed; Transpennine Express (former Arriva Trains Northern) and Transpennine Express (former North Western Trains). Bulk transfers of active members from the Arriva Trains Northern and North Western Trains Sections were made into the appropriate Sections. However, this meant that Arriva Trains Northern and North Western Trains Sections lost a significant proportion of their active members but retained their pensioner and deferred pension members. Transfer values of Protected members received a top up to ensure benefits were no less favourable but those actives remaining in the Northern Sections did not receive similar treatment from the new franchise holder. Thus contributions to the newly formed TPE Sections were lower than would normally have been expected because they contained only actives, but for the Northern and North Western Sections contributions were higher as a result of actives in those Sections having to support a greater number of non actives.
15.2. RMT does not have specific data indicating the exact effect on contribution rates but there is no doubt that actives remaining in the Northern and North Western Sections have been unfairly disadvantaged. We believe the Northern (Ex North East) Pensions Committee was equally concerned and has raised this issue with the Pensions Ombudsman.
16.1. When the Greater Eastern franchise was formed on 1st April 2004 from the former Anglia, and Great Eastern franchises, plus West Anglia services from the former West Anglia Great Northern franchise, there was a difference in the treatment of members transferring.
16.2. A few individuals previously employed by Central Trains were also encompassed. These individuals received the full past service reserve transfer regardless of whether or not they were protected or the Section's funding level but it is not known whether this was funded by the SRA or Central Trains.
16.3. The West Anglia active members were spun off into a new Section named London Eastern Railway (West Anglia) Section. The former WAGN Section remained as an individual section and was renamed West Anglia Great Northern Railway Section but retained all the pensioners and deferreds. Thus at the valuation date the new LER(WA) Section had 901 Actives, 45 deferreds and 15 pensioners, whereas the former West Anglia Great Northern Railways Section had 1089 actives, 1055 deferreds and 366 pensioners.
16.4. When the transfer was negotiated the Unions were advised that no-one would be worse off as a result of the transfer but to date a capital payment has not been made into the Section to reflect the fact that only 1089 actives are now supporting 1421 non-actives, despite the fact that responsibility for this Section transferred from National Express to First Group on 1st April 2006. Whether this payment should have been made by the SRA, National Express or First Group is of no consequence, but members should not be disadvantaged by funding a greater proportion of the deficit than would have been the case had the transfer not taken place.
16.5. It is a matter of grave concern therefore, that monies promised during the TUPE discussions were not paid and this was only discovered during consideration of the contribution levels required to fund the deficit. While we understand that meetings have recently taken place between the Trustee and the DfT, this issue should have been dealt with immediately, not left until it was discovered promised payments had not been made. However, notwithstanding that issue, WAGN actives spun off into the LER (WA) Section received different treatment as the SRA made top-up payments to ensure they received year for year benefits in the new Section.
16.6. The August Trustee Board considered arrangements to merge the First Capital Connect ex Thameslink and ex WAGN Sections without resolving
17.1. The Greater Eastern situation contrasts with the arrangements which applied following the transfer of Southern Trains Caldwell Depot to the new First Capital Connect Franchise (formerly Thameslink and the GN part of WAGN), where Protected staff received year for year but non protected staff had the option of a reduced transfer value which would not purchase year for year benefits or deferring their past service entitlement in the Southern Section. It seems that the transfer of this Depot was driven by Southern and therefore non protected members did not receive favourable terms.
18.1. Gatwick Station was recently transferred from Gatwick Express to Network Rail, but RMT has no indication as to the transfer arrangements applicable in this instance.
19.1. Until recently the Trustees have not been in favour of merging different Sections when franchise boundaries change. Although Scheme Rules provide that mergers should be effected unless the Trustee agrees otherwise, protection arrangements contained in the Pensions Act, 1995 resulted in concern about infringing members' pension rights and the ability of the Actuary to provide a GN16 Certificate. Relaxation of protection in recent legislation has resulted in the Trustees becoming more amenable to mergers.
20.1. From our previous information, it will be seen there is clearly an imbalance of treatment on all transfers which is totally unsatisfactory. RMT is firmly of the view that members should not be disadvantage arising from a compulsory change of their employer. In view of the fact that further massive changes are planned to the current franchise map, it is imperative to resolve the absurd and unacceptable treatment of scheme active members upon such reorganisations.
20.2. Central Trains will disappear with services being split between the new West Midlands and East Midlands franchises. Additionally some of the Central Trains 'Citylink' services based on routes radiating from Birmingham will also make up the new Cross Country franchise but the Cross Country franchise will not include the current services from Reading to Brighton via Gatwick Airport.
20.3. Midland Mainline services will form part of the new East Midlands franchise. Whereas Silverlink services will form part of the new West Midlands franchise, except for Silverlink Metro services, which together with the East London Line extension will make up the North London Railway concession to be let by Transport for London.
20.4. If Government wishes to play musical chairs with the franchises that is obviously a matter within their control but, regardless of whether RMT as a Union agrees with those changes, the fact is that such alterations have a major impact on our members' pension arrangements. The current arrangements are quite frankly preposterous, unworkable, and divisive, and need to be completely overhauled. When privatisation was proposed and the RPS established, constant extensive franchise changes were never envisaged. Accordingly the scheme's structure is not sufficiently robust to deal with these situations without affecting members' benefits. A one-TOC Section would solve many, if not all pension problems associated with franchise re-organisations, but a completely combined single scheme for all would solve all transfer problems throughout the industry.
21.1. Similar transfer issues have arisen in respect of the Infrastructure workers, but this did not become a concern until the wholesale transfer of maintenance workers into Network Rail. At that time the effect on individuals would have depended on changes to their Section's benefits compared to the NR Section.
21.2. Further, more detailed, comments on the effect of the decision to repatriate maintenance may be found under the heading Government Involvement.
22.1. The TOCs have stated they are unable to agree to a one TOC Section. Most have stated it is up to the Department for Transport, adding they would consider this if it were proposed by the DfT. However, the Dft says it is up to the TOCs. Some TOCs have stated this is a matter for the Trustees. But the Trustees won't establish a TOC Section without the agreement of the companies and the DfT. Basically it seems no-one is prepared to take the lead on this issue while in the meantime our members suffer the consequences.
22.2. However, so far as RMT is concerned there is no fundamental reason why there should not be a single section for TOCs. The unfairness revealed in previous paragraphs which arises from franchise boundary changes has continued for far too long.
23.1. During discussions with employers, many expressed concern at this proposal, claiming cross subsidies would increase their costs and that they would have no check on pay and benefit increases agreed by other companies. TOC's with lower than average contributions and Network Rail have stated that they would be funding deficits in other sections. In fact Network Rail in their attempts to persuade RMT members to vote against industrial action made great play of this point, drawing attention to the high contribution rate payable by members of the infrastructure company sections. As we will point out later in this document, those sections' contribution rates were significantly higher than Network Rail's principally because the majority of their active members had transferred following the decision to repatriate track maintenance and as a result of being closed to new entrants other than those with protected status.
23.2. Whilst the companies' initial concerns on this issue are understandable, it is not something which is insurmountable, and it is possible to build in safeguards. The Omnibus Section makes provision for this under Rule 4G where an annual investigation is carried out into four possible causes of cross subsidy between the various employers in order to prevent abuse such as a massive increase in pensionable pay in the year preceding retirement. These checks are as follows:
· Pay increases
· Early Retirements
· Membership increases
· Relationship between pensionable pay and final average pay on leaving.
23.3. In each of the above a specific tolerance is permitted. Any employer exceeding those tolerances has to pay increased contributions to meet the excess cost. All employers participating in the Omnibus Section during the year are taken into account, including employers who joined or left during the year. Rule 4G was created during the period of surpluses. It may not therefore be directly appropriate and require refinement to deal with the identification of costs where membership decreases and shortfall contributions are required.
23.4. With regard to funding of deficits, arrangements could easily be made to cater for the current situation by way of a special payment schedule until the deficit has been removed.
23.5. The opportunity could also be taken to standardise benefits across every Section rather than individual arrangements applying from section to section; although the implications for this would require detailed consideration. By and large future service benefits are still identical but there are minor differences which could be eradicated on grounds of simplification.
23.6. RMT has cross-subsidy concerns of its own, although not necessarily those exposed by the employer. We are concerned at the cross-subsidy from our lower paid members to those in receipt of higher pay in circumstances where employers redesignate management or senior employee posts in the year prior to retirement with a large pay increase in order to increase significantly the pension entitlement of the individuals concerned. Whilst we understand that the nature of a final salary scheme provides for such events, RMT members feel situations where the fund could be being manipulated, so that highly paid individuals are able to 'take out more than they put in', is unsatisfactory and, except in cases of medical retirement, needs to be addressed.
24.1. RMT is content for the 1994 Pensioners Section to remain separate, but is aware of the economies of scale for investment purposes which could be provided from a weighting of 'safe' investments such as those required for pensioners. However, in view of the fact that the actuary may again strengthen mortality assumptions for the 2007 valuation, we believe these members should remain stand alone until the situation has been clarified.
25.1. The fourth plank of RMT policy is that all Sections should be open to new recruits. Currently a number of Sections are closed. As stated earlier this results in funding costs being currently approximately 4% higher as the Section is valued on a different basis. The Shared Cost nature of the RPS means members' contributions are 40% of this higher amount.
25.2. For many years the Anglia Section was the only TOC Section closed to new entrants. As a result of the high contribution necessary after the 2004 valuation, the employer proposed it be re-opened with a two year waiting period. But the price was agreement to a similar waiting period for the Great Eastern and West Anglia Great Northern Sections. This reduced the contribution rate for the Anglia Section by 0.75% but increased the amount payable by GE and WA members by a similar amount. RMT & TSSA rejected the proposals as we wished all Sections to remain open for new recruits, but ASLEF did not. The proposal was subsequently placed before the Trustees and agreed.
25.3. We do not believe employees should subsidise their employer's in this way, after all management payroll costs are significantly reduced for every employee not in the RPS. To increase that saving by a further 1.5% at the expense of their RPS employees is totally unacceptable, if not immoral. Closed sections status also impacts on transfer values and the provision of benefits for members transferring in.
25.4. RMT's other objection in this respect is that en employer closing its section means that the conditions of service of new employees, other than protected staff, are inferior. This creates a two-tier workforce which is a recipe for envy and discontent. It also makes RPS employees more vulnerable as their employment costs are greater.
25.5. RMT realises many of the railway employers would prefer not to participate in the RPS, and would prefer to follow the recent trend of only offering Defined Contributions (Money Purchase) schemes. Employers use Defined Contributions (Money Purchase) provision as a cost saving exercise. Many state they are unable to afford the risk of a Defined Benefit Final Salary fund and require a fixed employment costs, but employer contributions to DC schemes very rarely come anywhere near those paid to a DB scheme.
25.6. However, the trend of closing final salary schemes does not extend to Board members of large corporations who have continued to gain from final salary pension plans. A recent survey by Origen revealed that nearly half senior executives have held on to final salary pensions with 66% of these schemes closed to new members. The Origen annual survey, which polled 439
25.7 The survey also found that the average combined contribution to DC schemes had risen from 10.7% to 11.7%, but this is still well below the amount necessary to provide adequate retirement incomes for many workers. A contribution of 11.7% of earnings would only provide a pension of 15.2% of pre-retirement earnings for a 40 year-old new entrant retiring at 65.
25.8. Similar disastrous news for DC scheme members was recently covered in the National press in where a study commissioned by Moneyfacts revealed that personal pension payouts had plunged by over 50% and resultant annuity incomes by 70% in July 2006 compared to July 1996. Poor stock market returns and plummeting annuity rates have meant that retirement incomes have been decimated with today's DC pensioners facing longer retirement with pension pots half the size of those fortunate enough to have retired a decade ago.
25.9. Given such revelations it will not be a surprise to learn that RMT will resist most strongly any further attempts to undermine our members' benefits in favour of Defined Contribution arrangements.
26.1. In our submission in response to the then Government's privatisation proposals in 1992 RMT stated that "it is imperative that pension arrangements should not only be flexible enough to cope with these factors, but also that adequate safeguards should be in place to overcome the obvious uncertainties and difficulties which will almost certainly arise, not only immediately after vesting date but also in the future. This is of the utmost importance because the very nature of franchising involves the possibility of frequently changing employment arrangements."
26.2. We feel the current arrangements have moved away from that ideal and require detailed examination to ensure our members are not being disadvantaged.
26.3. As explained earlier, in response to employer proposals to limit contribution levels, the Trustee are agreeing various benefit changes. RMT believes this is undermining provision by default as it is dealing with individual issues on a piecemeal basis without considering the wider implications for the Scheme.
27.1. The Government can not absolve themselves of responsibility on this issue by claiming our dispute is nothing to do with them other than for the small number of Sections where they are the employer ie OPRAF and BR Sections.
The DfT pays millions of pounds a year in public subsidy to the Train Operators, bankrolls Network Rail and, via Network Rail contracts, the Infrastructure companies.All told in 2005/06 Government support to the rail industry stood at £4.5billion, which when compared to the £930m Public Service Operating Grant provided to British Rail in 1993/94.reveals the extent of the Government's involvement.
27.2. Under British Rail, pension contributions were reduced to compete with personal pensions. It was fortunate this coincided with a large surplus in the fund, but RMTs view is that the reduction in rates would have occurred in any case, as when the Trade Unions expressed concern at the effect of increased contributions when the surplus had been eliminated, the then Pensions Director, John Goodchild, expressed the view that the Board would agree to keep contributions down. Regrettably, this promise was overlooked in during the privatisation process as the Unions were striving to protect scheme assets and retain access to the same level of benefits.
27.3. Regardless of whether this would have been the case, there is little doubt that if the Railways had not been privatised members would not be expected to pay additional contributions in respect of Section deficits, or indeed closed Sections. RMT is of the opinion that deficits arising from the actuary's changed assumptions would have been underwritten by the Board in recognition of the fact that the service had accrued in their employment. RMT believes that the Shared Cost nature of the Scheme had always related to the cost of buying benefits until retirement. It did not relate to the cost of baling out pensioners and deferred pensioners following a realisation by the Actuary that previous assumptions paid insufficient regard to increasing longevity and too optimistic prospects of continuing strong returns from world stock markets. These issues have of course been compounded by the Regulatory imperative to clear deficits over short periods. Although this is quite understandable and more appropriate to private industry where companies can become insolvent, it is less important for State owned or State backed organisations.
27.4. Pension planning and funding is a long term issue. While pensioners at privatisation were taken out of the new open sections, the burden of deficit funding in respect of anyone retiring after November 1994, regardless of the fact that the majority of those individuals service will have been under the Nationalised Railway, will fall on individual members many of whom will not have joined the railways until the last few years and will not have benefited from surplus distributions, ie enhancements to past service, reduced contributions or Brass Matching. Obviously the situation will vary from individual to individual and from Section to Section, but RMT is in no doubt of the unfairness and inequity of burdens in respect of past service elements falling on current fund members, many of whom have not enjoyed the fruits of 'the good years' but are now expected to pay unacceptably high contributions to fund those improvements.
27.5. Many Sections have been undermined arising from actions by Government, or emanations of the State. The situation so far as TOCs is concerned is outlined above, however, of no less significance wass the wholesale reorganisation of infrastructure maintenance which resulted in thousands of active members being transferred from the Infracos to Network Rail. Not only did this significantly reduce the number of active members in Infraco sections but the Schemes extremely favourable early retirement factors meant that many of transferees over age fifty decided to draw their pensions rather than leave them deferred or transfer to the Network Rail Section. For some this decision was prompted by unfavourable transfer terms.
27.6. A comparison of the infrastructure companies' active members and the change in the membership profiles reveals how these Sections have been completely undermined by Government policy. The number of actives in relation to pensioners and deferred pensioners has changed beyond all expectation in a very short period. While this has not affected the future Joint Contribution Rate, the fact that these sections are in deficit and the significantly reduced number of active members means far fewer people are available to pay the deficit, thus increasing the amounts payable by those left behind.
27.7. Table 'A' reveals how the profile of Infrastructure Company Sections has changed since privatisation, and highlights how significantly fewer actives are being required to support a massive increase in pensioners and deferred pensioners. In a closed Section of course, the effect of these dynamics become even more acute.
27.8. These comments are not intended to criticise the actions of those individuals who decided to draw their pensions in these circumstances, as after all it is a well know fact that a number of senior railway managers who moved from company to company since privatisation have taken advantage of the same arrangements. The purpose of highlighting this particular issue is to draw attention to the law of unintended consequences arising from Government backed decisions to redraw the boundaries of the original privatisation map, and the adverse effect this has had on ordinary railworkers and the funding arrangements for their pension fund.Quite frankly individual working railwaymen and women should not be exposed to such vagaries.
28.1. We have commented earlier that the principal difficulty in resolving issues relating to the RPS, is the lack of a forum to deal with this and other matters. The employers have rejected any overtures for such a forum. However, RMT is aware that employers themselves have made representations through the Trustee Board for their own forum. A report by Watson Wyatt on behalf of the Trustees recognised the usefulness of a strong employer forum to formalise discussions of ATOC and IMC Contractors Group. Regrettably there were no such considerations for TU participation.
28.2. RMT has been concerned for some considerable time at the lack of involvement in the consultation process. Dissemination of pension information/consultation requirements by Pensions Management assumes the employer is consulting. New consultation regulations mean this is more likely to take place in the future but there is still no guarantee that every aspect affecting the Scheme will be covered. If there had been a Central Consultation Committee on the lines of the old BR Pensions Joint Working Party, it is possible this current situation would not have escalated into a dispute and the establishment of a formal consultation process should prevent difficulties arising in the future.
29.1. RMT is very much aware of the drive by employers throughout the
29.2. Obviously since commencing our campaign the situation has moved on. Employer data has been refined and the final valuation report published. But decisions have been taken on the basis of the results for individual Sections regardless of the wider impact. Although the Trustee has agreed employer proposals to amend contribution rates, in some cases this has involved changes to benefit entitlements. Some employers have agreed capital payments, but the overriding majority have stuck rigidly to the 60:40 funding with high contributions now or at some time in the future. Some proposals are still outstanding and if agreement is not reached shortly will fall foul of the default procedure.
29.3. In addition, the Trustees have also determined that future applications for early pensions would not be considered on an individual basis rather than the Scheme's favourable early retirement factors being automatically applied in all cases.
29.4. RMT believes very strongly that our four policy objectives of; streamlining the scheme, keeping contributions to an affordable level, maintaining current benefits, and ensuring it is open to all employees, are not unreasonable. The structure of the industry has changed markedly since privatisation, not least the metamorphosis of Railtrack into the much larger and far more influential Network Rail and all the unforeseen affects that has had on Infraco Section members.
29.5. There is no doubt current and former rail employees would benefit across the board from greater economies of scale. Members in closed schemes would see an immediate reduction in contributions by moving to one of the three open Sections. Members transferring would be free of the current restrictions as well as the myriad of complicated and damaging implications, and all beneficiaries would welcome the stability this would provide.
29.6. We sincerely hope that having examined the complexity and unfairness of many aspects of the RPS, the Commission will conclude that RMTs four policy objectives are the only way forward and recommend accordingly.
October 5, 2006
