My Ref: MRP 1/8/1
2nd September 2022
Circular Num: NP/187/22
To: The Secretary All Branches & Regional Councils
RPS TOC SECTIONS 2016 & 2019 ACTUARIAL VALUATION – INTERVENTION BY THE PENSION REGULATOR
I refer to Circular NP/098/19, 31st May 2019, as previously reported the 2016 and now due to the passage of time, the 2019 Actuarial Valuations of TOC sections of the RPS, have not been concluded. This is due to the intervention by the Pensions Regulator (tPR).
This delay has been caused by tPR perception that train operators, those companies who hold the the contracts of the former train operating franchises are not as financially secure as the Trustees of the RPS have rated them. As a consequence of this belief, tPR is instructing the Trustees to review the assumptions which are used for the 2016 and 2019 valuation.
Until the intervention of tPR train operators had been assessed as Covenant One which meant their assets could be invested at a greater level of risk meaning higher investment returns in the long run. Since privatisation and the creation of the RPS this has proved a successful investment strategy and the returns have helped to secure fund benefits and keep pension contribution rates down.
However, the view of the tPR is that the RPS Trustee should adopt a more cautious investment approach and want to downgrade their Covenant rating.
On that basis tPR believes that the valuation results are incorrect and that the funding level for each TOC section should considered to be at least 25% lower that the Trustees’ valuation. In other words, if a section is 105% funded based on the current Trustee assumptions it would be 80% funded if the assumption were changed in line with tPR expectations. This would push most sections from being fully funded into deficit.
We are advised that to address tPR’s expectations the change in investment strategy could increase the average joint contribution rate by 15%, from 19% to around 34% of Section Pay. Members on average could see their contributions increase by up to 7.6%. Clear unaffordable and indeed unacceptable.
However, tPR has the power to force the Trustees into making these changes if it took legal action which would clearly be to the detriment of members of the RPS which would no doubt drive members out of the scheme due to affordable level of contributions.
As we have previously reported the RMT and our sister unions have been discussing tPR’s intervention with TOC employers for an extended period through the joint Informal Pension Steering Group (IPSG) with the aim of finding a solution which would allow both the 2016 and 2019 valuation to be signed off and in turn protect members from the significant and unaffordable contribution increases mentioned above.
I can advise that a proposal was made to this union and our sister unions on 25th August 2022 at a presentation given by the chair of the IPSG. The proposals outlined were:
• Past service Pensionable Pay cap of CPI per annum for all members with any increases
above the cap being pensionable for future service only A 2-year waiting period for new entrants without RPS membership.
• New employees would join the Industry Wide Defined Contribution Pension scheme for the 2-year waiting period.
• For the majority of members and TOC sections, increases in member and employer contributions on a stepped yearly basis in consecutive years capped at 1% per year for members. This will be a maximum of 4 years and 4% from July 2023. For a small number of sections, no increase will be required although again we await the detail.
I can advise that your National Executive Committee are currently considering these proposals and will report back to you as soon as a decision has been made. We will also be contacting the other rail unions on this issue.
I will keep you informed of developments.