RAILWAY PENSIONS (Hansard, 20 May 1993)

The Minister of State, Department of Transport (The Earl of Caithness)

We have now completed our consultations about the future of railway pensions. We have had very helpful discussions with representatives of pensioners and of contributing members to the railway pension scheme, with the trustees, with the trade unions and with the Railways Board.

Our objective remains to preserve the security of rights enjoyed by pensioners and members while adopting arrangements to suit the new structure of the privatised industry. The proposals we are announcing today meet this objective.

We have decided that there should be set up, under the powers granted in the Railways Bill, a joint industry pension scheme for the railways. This will be broadly on the basis set out in the consultation paper Railway Pensions after Privatisation, issued in January. The governance and administration of the joint industry scheme will continue to involve both the employers and employees in the industry. We shall be discussing the detailed arrangements with interested parties. The eventual arrangements will need to reflect the recommendations of the Pensions Law Review Committee, chaired by Professor Goode.

Existing employees' rights will be protected by statutory orders made under the Railways Bill. The benefits offered to employees must be no less favourable than those in the existing scheme. There will be no penalties for involuntary breaks in employment. The present schemes under which the employer matches additional voluntary contributions made by employees (BRASS schemes) will continue, subject to the existing right of the employer to withdraw matching for new or increased contributions.

Employees should be reassured by the statutory protection of these benefits. But we now propose to go further and give those staff serving at Royal Assent an individual right to remain in the joint industry scheme for as long as they are still employed in the railway industry. An amendment to the Bill to secure this "indefeasible" right—on which representatives have placed great importance—will be brought forward in another place.

There will in addition be specific safeguards, in franchise contracts, to cover the transfer of pension funds when a franchise changes hands.

97WA

In our consultation paper we proposed two possible broad approaches to arrangements for existing pensioners. Option 2 would have involved an appropriate portion of each fund being transferred to the Government, in return for guaranteed index-linked pensions. There was very little support for this option in the consultation. The Government have decided not to proceed with it.

Instead, Option 1, a closed scheme for railway pensioners with appropriate support by investment, will be set up in due course, which will enable them to participate in any future surpluses there may be. We shall discuss with the trustees and the board the timetable for establishing this scheme, taking account of the need to have clear arrangements in place as soon as possible. But we recognise the trustees' need for time to rearrange their investments to secure the pensions of their members. Meanwhile the pensioners will continue in the BR scheme with the board's remaining employees. Again in response to points made in consultation, we are content for the pensioners' closed scheme to be managed as part of the joint industry scheme, provided that its governance arrangements are satisfactory. This will require further discussion and will again need to reflect the outcome of the Goode Committee's recommendations.

The division of funds between sections of the joint industry scheme and any new schemes will take into account the liabilities of those schemes, and the decisions made by the trustees following the 1990 actuarial valuation to improve pension benefits and to reduce contribution rates. The calculations will be subject to independent actuarial advice. These calculations will be carried out in the light of the present valuation of the fund, which is expected to be completed in the autumn.

The Government will continue to make the contributions to BR pension funds fixed by the Transport Act 1980. The necessary amendments to the 1980 Act to make this possible have been put down for discussion at Report stage.

Orders for setting up new schemes, transferring funds and protection of existing employees will be subject to the affirmative resolution procedure in both Houses. Orders relating to schemes and funds will be the subject of statutory consultation with the trustees.

It is both natural and right that pensioners, pension scheme members and trustees should express their concerns and seek reassurance about pension arrangements in the privatised railway. The consultation document gave them the opportunity to do so: these decisions address those concerns and provide that reassurance.