§ Motion made, and Question proposed, That this House do now adjourn.—[Mr. Alan Howarth.]
§ 10 pm
§ Mr. Conal Gregory (York)
The British Rail pension fund is the fifth largest pension fund in the United Kingdom, valued at about £5,598 million. For a long time I have taken an interest in transport policies, and I am vice-chairman of the Conservative parliamentary transport committee. I am proud to represent many constituents who work in or have retired from the railway industry. I am delighted to initiate the debate and thank in advance my hon. Friend the Minister for Public Transport, who will respond to the debate.
I single out for praise Mr. Ernest Booth, one of my constituents, who is the president of the British Transport Superannuitants Federation. I have enjoyed working with him and his colleagues on this important issue, as I shall no doubt continue to do. I raise the subject after lengthy correspondence with the Department of Transport and with the chairman of the British Railways Board, Sir Robert Reid.
There are two major concerns: first, the apparent lack of accountability of the fund's management team, and pensioner representation; and, secondly, the proper allocation of surplus funds, especially taking into account those who have contributed for many years.
The constitution of the funds does not provide for representation of the policy-making committees of any retired staff, despite repeated requests. That is almost unbelievable. There are three key contributors to the funds: the British Railways Board, the active staff who are subscribing and the retired staff who have contributed during their working lives and whose subscriptions form a significant proportion of the funds. When the constitutions were drawn up, the number of retired staff was minimal, but now that group outnumbers the employees. There are about £165,000 railway pensioners, a sizeable proportion of whom belong to the British Transport Superannuitants Federation, which has been seeking official representation since 1977. There are more pensioners than the 144,000 employees in the fund. Even on the management committees, there is no pensioner representation. It is a carve-up between the board and the unions, although the National Union of Railwaymen, the Associated Society of Locomotive Engineers and Firemen and the Transport Salaried Staffs Association have not contributed a penny to the funds.
Below the management committee, the funds have established a non-statutory joint working party to discuss the surplus and to formulate recommendations. Again, there is no pensioner representation. The working party consists of representatives of the board and the trade unions and ignores key groups, especially pensioners. Of course, its constitution could easily be amended. Pensioner representation on the joint working party was discussed about three years ago. The board's chairman has advised me that the board expressed support for a widening of representation on pension matters, but that that was blocked by the unions.
Although we do not have the pleasure of seeing their representatives in the House tonight—they have already left for their beds and cocoa—railway pensioners must rely, justifiably, on me to make their case. They have 330 contributed their working life to the industry, but they are denied a voice at key levels. It is high time that the funds were reconstituted to give, as of right, places to railway employees past and present.
If one looked for a heavily unionised industry where the muscle power of existing employees could be exerted, but where pensioners, elderly and geographically scattered, seemed powerless, what better example could be taken in the United Kingdom than British Rail? How can those who have retired from the railway industry be sure that trustees are treating them with an even hand?
I am delighted that my hon. Friend the Minister for Social Security has asked the Occupational Pensions Board to conduct an investigation into how pension rights can be protected. Many arrangements under which pension schemes are presently administered are unsatisfactory, particularly with regard to entitlement to actuarial surpluses and the use of surpluses to fund company contribution holidays. I hope that British Rail will be fully investigated by the OPB. Trustees should be aware that funds are for all members, not least pensioners, and that they have equal status as beneficiaries.
Let me deal now with the second major strand of the debate—the proper allocation of surplus funds. The British Rail pension scheme is divided into two parts—the contributory benefits section, which relates to benefits accrued in most cases after September 1970, and the preserved benefits part, which relates to the remainder of the benefits.
On 1 April 1987—no doubt pensioners see that as all fools' day—the scheme revealed a surplus of £1,169 million in the contributory benefits section, and a surplus of £285 million in the other part, even though the latter arises only if payments by the Government under the Transport Act 1980 continue at their present level. The scheme's actuary estimated the value of those payments at £395 million. In total, that is a truly exceptional surplus.
Like bees round a honey pot, British Rail management and unions decided how to carve up that surplus, much of which had been secured through the contributions of those now retired. The payout for pensioners was a derisory flat sum of £2 a week on top of a 4.2 per cent. increase based on the rate of inflation at that time.
However, it was a different story for British Rail and the unions, who jointly decided to give a boost to the take-home pay of present staff, while cutting the board's contributions by some £55 million. British Rail raised basic pay rates by 5 per cent. from 11 April this year. Much more quietly, they effectively boosted real pay in July by cutting the sum paid by employees to the fund. Contributions were reduced by half. That meant a boost to the weekly pay packet of a railman of £2.32, a guard of £2.78, a train driver of £3.94 and a clerical officer on grade four of £4.93. Those sums are even greater in the London area.
The publicity leaflet, Mr. Speaker, which I am delighted to show you tonight says, "Benefits up, contributions down." But the shameless fact that contributions were being halved by cutting what should justifiably go to pensioners was not spelt out.
After a long correspondence with British Rail and the Department of Transport, which started in January this year, I have been instrumental in gaining a little more of the honey for the pensioners, and the Government have confirmed that they will not alter their contribution—an honourable course taken by my hon. Friend's predecessor.
331 What of the latest deal? Now, almost a week after being notified by you, Mr. Speaker, of this Adjournment debate, and suitable publicity being given to that fact, British Rail has mysteriously written to me to inform me that it has thought again about its pensions and will double the sum offered to the greater of £4 a week or 15 per cent. of pensions. That is the measure of your power, Mr. Speaker, in selecting Adjournment debates.
§ Sir Antony Buck (Colchester, North)
Does my hon. Friend agree that one sign of the power of Parliament is Mr. Speaker, but that there is nothing that concentrates the mind more than doing what my hon. Friend has done in having an Adjournment debate on this matter, which is of considerable importance?
§ Mr. Gregory
I am always grateful to my hon. and learned Friend for his contributions. He made his point poignantly.
The comment by the British Railways Board that it is prepared effectively to double the offer to the pensioners to the greater of £4 a week or 15 per cent. of the current pension is welcome but tardy after repeated representations and still does not treat employees and railway pensioners on an equitable basis. The proper use of surpluses should be to help pensioners and to retain funds for those who will retire, rather than to carry out a back-door manoeuvre of artificially boosting current pay rates—above those of other nationalised industry workers—to current staff.
I have exposed two major problems that affect pensioners in the railway industry. There are conflicting interests between the employers and different classes of beneficiary. There should be compulsory representation on all the funds of the different classes of interest. Indeed, in view of the dogmatic approach taken by the unions in denying pensioner representation, there is much to be said for the British Rail pension fund being managed by a wholly independent trust corporation, with adequate allowance for consultation.
An independent body, such as the ombudsman—I was instrumental in the House in pushing for a building societies ombudsman—to ensure that everything is clear, fair and above board would be welcome. If it is acting in the interest of all beneficiaries, British Rail should welcome rather than frustrate such a development.
I hope that after this debate the funds will find that suitable representation covering both salaried and wage grades from the British Transport Superannuitants Federation can be accepted. I am sure that such representatives would watch the interests of the rapidly growing number of retired staff. Above all, they would be vigilant at the formative stages in the policy-making process to ensure that there was a fair application of any surplus funds to which their key sections had contributed.
§ The Minister for Public Transport (Mr. Michael Portillo)
It is a great pleasure to debate with my hon. Friend the Member for York (Mr. Gregory), and I congratulate him on securing this debate. I thank him for his great courtesy towards me in the run-up to the debate.
My hon. Friend's constituency is well known as one of the premier railway towns of Britain. He has gained a reputation for speaking with passion for his constituency, 332 but always in a manner that is fair and extremely well informed. He has become as much a master of railways as he is a master of wine.
I thank my hon. Friend for bringing to my attention the work of his constituent, Mr. Ernest Booth, the president of the British Transport Superannuitants Federation. Clearly, he is an assiduous campaigner for the rights of his members and pensioners.
The British Rail pension fund is an independent legal entity. British Rail management and unions have equal representation on the management committee. Ministers have no direct involvement in the running of the pension scheme or any specific powers in relation to the distribution of surpluses.
The fact that there are no pensioner representatives on the management committee or joint working party of the scheme should not be seen as constituting a lack of accountability. It is perhaps an over-simplification to assume that the scheme needs to be directly accountable to pensioners in that way. The terms of the scheme guarantee both pensions and cost of living increases. The pensioners are therefore receiving exactly what they paid for when they were contributing members. The management of the fund does not threaten them, because their position is protected.
Most British Rail pensioners are ex-trade union members and are represented in the British Rail scheme by the unions on the management committee, the scheme's decision-making body, and on the joint working party, the negotiating forum, as my hon. Friend described. I know of no evidence that the majority of pensioners are unhappy with that arrangement.
The board keeps in touch with a number of pensioners' associations and has discussed the distribution of the surplus with those bodies. However, there is no association that could claim to represent a majority of the 165,000 current and deferred pensioners.
The board recognises that the BTSF represents a significant number of pensioners, although its 20,000 members still account for only a minority. Three years ago the federation was unsuccessful in its application to be represented on the joint working party. However, last year the board suggested to the BTSF that it might once again put forward its case for representation. That invitation was repeated by British Rail's chairman in February, but there has been no response. I understand that the board will he happy to discuss the case for representation with the BTSF, and therefore the ball is in the federation's court.
It would be unusual for a pension fund to appoint an independent ombudsman, as my hon. Friend suggested, and there is no justification for singling out the British Rail scheme in that way. The question of independent trustees and of independent pensions arbitration is, as my hon. Friend said, being examined by the Occupational Pensions Board's wider review of the balance of interest of employers and pension scheme members. I understand that the OPB will report by the end of the year.
The OPB has not "investigated" the BR scheme or any other. It is carrying out a general review of the balance of interests between employers, trustees and members of pension schemes. It will not draw any conclusions about any individual schemes. The BTSF has not submitted any evidence to the OPB's review. It was not specifically invited 333 to do so, but the press notice announcing the review made it clear that the OPB would be pleased to hear from anyone with an interest.
I shall now deal with the distribution of the surplus, of which my hon. Friend gave an accurate account. As he said, a recent valuation of the fund revealed an actuarial surplus of £1,454 million. Of that, £1,169 million arose on the contributory benefits section, which operates in a conventional way, receiving no assistance from the Exchequer. The remaining £285 million surplus arose on the fund's preserved benefits section. That relates entirely to historic liabilities, has no contributing members and is funded in part by the Exchequer.
In the light of the surplus, Ministers reviewed whether the Exchequer should continue contributing to the preserved benefits section. While the review was in progress, the pension fund was able to distribute only the surplus on the contributory benefit section. That distribution was announced in June and comprised halving employee contributions, halving employer contributions, and a £2 per week improvement in pensions.
In July, as my hon. Friend correctly recorded, the Government decided to continue Exchequer funding of the preserved benefits section, releasing a further £285 million surplus for distribution. That was announced earlier this month and comprises an increase in pensions above that announced in May of £2 per week to £4 per week, or 15 per cent. of total pension, whichever is the higher. So the total £1,454 million surplus has been distributed in the following way. Forty one per cent. of it has gone in reducing employee contributions and providing other benefits for contributing members; 35 per cent. on a reduction in employer contributions; and 24 per cent. in improved pension benefits.
My hon. Friend appeared to argue that more or all of the surplus should be used to increase benefits. The arguments against, which have been deployed in correspondence to him from British Rail's chairman are, first, that the surplus is only partly the result of past contributions from pensioners. The majority can be ascribed to past contributions by the board and by members who have not yet retired and who are still contributing. Therefore, it is equitable that the board and contributing members should enjoy some of the benefit of the surplus.
334 Secondly, of the three parties to the scheme—the board, contributing members and pensioners—pensioners are in the most protected position, as their pensions are guaranteed. Therefore, the fund has discharged its responsibilities towards them, for they are in receipt of the pensions to which they contributed. The contributing members and the board have no such certainty. If, at a future date, the fund is unable to meet its liabilities, contributions will have to rise, or the value of pensions decrease.
Thirdly, the chairman of British Rail has argued that the pensioners are getting a good share of the surplus in the 24 per cent. that is being distributed.
It is quite usual for a pension fund surplus to be used in part to reduce future contributions. However, it may be misleading to think of the pensioners as owning all or part of the surplus. Strictly speaking, they have no rights to the surplus—in the same way as they have no obligation to meet any deficiency. It is true that the surplus arises, in part, because of higher than necessary contributions by contributing members in the past and that some of those members will now be pensioners, but if past contributions had been too low and a deficiency had arisen on the fund, the pensioners would not be required to pick up any share of it. It is the board and the contributing members who must make up any deficiency that arises.
The distribution of the surplus and the arrangements for representation are not subject to ministerial approval. The firm policy of this Government, and of previous Governments, is not to interfere in the running of the pension scheme. The scheme is the responsibility of the employer and the scheme members. I am bound, therefore, to say to my hon. Friend that there is no scope for me to intervene. However, I can make two suggestions to him, which I hope he will find helpful. First, he may wish, even at this late stage, to put any points that he may have to the Occupational Pensions Board to form part of its review. Secondly, he may wish to ask the British Transport Superannuitants Federation to put a case to British Rail for representation on the joint working party.
I am grateful to my hon. Friend for this opportunity to respond to the debate. I have been unable to satisfy him in every way, but I hope that some of my remarks will have been helpful.
§ Question put and agreed to.
§ Adjourned accordingly at twenty-one minutes past Ten o'clock.