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Railways pension scheme (RPS)

Published Wednesday, May 1, 2019

This note looks at the development of the Railways Pension Scheme set up in 1994 following the privatisation of British Rail

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The Railways Pension Scheme (RPS) is the final salary Defined Benefit (DB) scheme that replaced the old British Rail Pension Scheme (BRPS) following privatisation of British Rail.  It is an industry-wide umbrella scheme with a number of different sections.

Pensioners and preserved pensioner members of the BRPS on 30 September 2004 were transferred into a separate section of the RPS – the 1994 Pensioners Section.  Active members of the scheme were transferred into a shared cost arrangement (sca). 

Employees and members of the BRPS at midnight on 4 November 1993 were “protected persons”. They had a legal right to pension provision for their future employment which would be “no less favourable than the relevant pension rights which he had under [the BRPS].”  This protection is retained unless and until they voluntarily leave their employer, withdraw from the RPS or agree to waive their protected status.  An individual who moves voluntarily from one railway industry employer to another loses protected status for future accrual, but not the “indefeasible right” to participate in the RPS.

In 2003, Network Rail decided to close its final salary RPS to new entrants from 1 April 2004 and to introduce a Defined Contribution (DC) scheme.  After protests from the rail unions, who balloted their members for strike action, Network Rail agreed to reopen the final salary scheme to new entrants with five years’ service. 

A valuation of the RPS (sca) in 2004 showed it to have a deficit of £0.4 billion, compared to a surplus of £1.8 billion at the time of the last valuation of the BRPS in 1993 prior to privatization. Concern about rising costs led rail unions and employers to establish an independent Railway Pensions Commission. Its first report, published in 2007, concluded that DB pension provision across major parts of the railway industry was sustainable over the long term if it was made more affordable. Its final report, published in 2008, made recommendations for change.

On 10 April 2019, Stagecoach said it had been informed by the Department for Transport (DfT) that it had been disqualified from three rail franchise competitions. It had been told that the reason was that its bids were “non-compliant bids principally in respect of pensions risk.” It argued that “without ongoing Government support for the long-term funding of railway pensions, the Pensions Regulator has indicated that an additional £5 billion to £6 billion would be needed to plug the gap in train company pensions.” It was “extremely surprised that the Government still expects private operators to take risks they are not best placed to manage.”

In response to a PQ on 24 April 2019, Transport Minister, Andrew Jones said:

Train Operating Companies are and continue to be responsible for paying employer pension contributions during a franchise term, and in the vast majority of franchises, have been on full risk for changes to those contributions during their franchise term since the Railways Pension Scheme was established. In the new East Midlands franchise, the operator is exposed to no additional risks or demands when compared to current franchisees. Indeed, the new franchise includes a risk sharing mechanism with the government, which reduces the risk that the operator will be exposed to. In this, the operator retains the risks that it is able to manage, which are the contributions which cover employee’s pension rights arising from future service. (PQ 244026, 24 April 2019).

Commons Briefing papers SN03109

Author: Djuna Thurley

Topics: Pensions, Railways

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