Stagecoach disqualified from three franchise competitions

Mikey C · 10 Apr 2019

centraltrains said:
If the government required the new franchises to take some sort of pension cost within the new franchise, surely it is totally reasonable for the companies who have not complied with this requirement have their bids declined?

What possible legal points would stagecoach have if they appealed?

Stagecoach's gripe I think is that the potential cost isn't defined, thus making holding rail franchises much more risky financially as the amount is unknown

RailUK Forums

RealTrains07 · 10 Apr 2019

hwl said:
It was.

No surprise there then! Hopefully more will get involved after it restarts considering the sort of franchise it is

hwl · 10 Apr 2019

Mikey C said:
What a shambles, but then I imagine most people outside the industry hadn't considered the complications of having a constant defined benefit pension scheme where the employees will be working for several different franchisees, especially as all such schemes (for one reason or another) seem to have big deficits.

Stagecoach and the bearded one have fair point in that the government is best to carry many of the risks especially as they control Gilt rates which are used in lots of pension calcs especially for employer defined benefit schemes (i.e. contributions and under/over funding judgements).

hwl · 10 Apr 2019

Mikey C said:
Stagecoach's gripe I think is that the potential cost isn't defined, thus making holding rail franchises much more risky financially as the amount is unknown

I wouldn't trust DfT's pension calculations /assumptions for longer franchsies.

hwl · 10 Apr 2019

RealTrains07 said:
No surprise there then! Hopefully more will get involved after it restarts considering the sort of franchise it is

Already happened a few times on SE.
The problems is a things drag on your original input assumptions and reality drift further apart which can get messy (as VTEC found)

gingerheid · 10 Apr 2019

hwl said:
Stagecoach and the bearded one have fair point in that the government is best to carry many of the risks especially as they control Gilt rates which are used in lots of pension calcs especially for employer defined benefit schemes (i.e. contributions and under/over funding judgements).

Maybe then they are also best placed to carry the reward too. I'm glad the governement have, for once, resisted privatising the reward and nationalising the risk.

Bertie the bus · 10 Apr 2019

There must be a Save Virgin Trains petition on the government’s website by now like the “independent” one in 2012 they used the PIS as their stations to plead with passengers to sign.

Helvellyn · 10 Apr 2019

WatcherZero said:
Bit of misinformation going on here. Yes the pension funds are explicitly linked to the franchises, they make the payments into the fund and are responsible for any shortfall in the pension fund by being required to make top up payments to it. When a TOC's franchise ends the company isn't dissolved its put into hibernation with enough cash in the bank to meet its assumed pension contribution and compensation/liability responsibilities (e.g. accident and injury claims) previously this commitment only applied to a TOC company rather than Railway industry pensions. Final salary pensions are ruinously expensive and employees and employers haven't been putting aside enough to cover the underperformance of those funds both financially and due to rising life expectancies. The Railway Pensions Scheme has a historic deficit currently estimated at £5-6bn due to these factors (for instance in 2017 employees had to make £11m extra and employers £51m in top up funding) presently the requirement for top ups only falls on the date they are due (e.g. if the fund is £10m short of money to pay out that year then the present incumbents have to make up that £10m in that year and their responsibility ends when their franchise ends) in the current round of franchising the Government has been asking the franchises to take over the role of guarantor from the state with lifetime deficit liability (i.e. if they had an 8 year franchise then the company would be responsible for that share of the employees pension deficit until the day they die).

Stagecoach is balking at making an unquantified commitment to top up underperforming pension funds which the Railway Pensions Regulator itself doesn't know the exact figure for.

Its not much better at NR which had a £1.3bn pension deficit last I heard.

The Stagecoach press release gives more detail. Sounds like RDG has worked up proposals to increase funding to the Railway Pension Scheme (TOC sections I assume) by £500-£600 million but with Government acting as the ultimate guarantor still.

But on BBC News the DfT response suggests Stagecoach wanted changed commercial terms - I wonder if that was diverting premium payments from DfT? With margins in rail less than 3% I do wonder why DfT thinks private companies should have uncapped liabilities for a business they don't own.

I think the gripe seems to ge that Stagecoach told DfT about these proposals months ago and are only told now it is the wrong thing. Either someone misread the signals from DfT or different parts of DfT are giving different advice (echos of VTEC and SWR).

Glenn1969 · 10 Apr 2019

I saw the £500-600m figure but according to the Pension Regulator the black hole in the scheme is more like £5bn and could be £6bn. Who in their right mind would fund that?

Also I have seen elsewhere on this forum that there will be an announcement about West Coast in June. My guess is it will go the First (echoes of 2012 if so) and SE will go to Abellio ("anyone but Govia")

dk1 · 10 Apr 2019

Hilarious reading some of the social media comments regarding the fleet & that Virgin wouldn't let anyone have their Pendolinos :lol:

Some people really do not grasp the real world when it comes to rail franchising :rolleyes:

Helvellyn · 10 Apr 2019

dk1 said:
Hilarious reading some of the social media comments regarding the fleet & that Virgin wouldn't let anyone have their Pendolinos Some people really do not grasp the real world when it comes to rail franchising

Does that include DfT? :lol:

ainsworth74 · 10 Apr 2019

dk1 said:
Some people really do not grasp the real world when it comes to rail franchising

I think, to be fair, the public at large a) don't really care (and why should they) b) even if they did care a bit it's a very complex structure to understand and c) both those who do care a bit and those who don't care at all are woefully informed by the main media outlets have don't really have a grasp on the complexities.

dk1 · 10 Apr 2019

ainsworth74 said:
I think, to be fair, the public at large a) don't really care (and why should they) b) even if they did care a bit it's a very complex structure to understand and c) both those who do care a bit and those who don't care at all are woefully informed by the main media outlets have don't really have a grasp on the complexities.

Agreed but before I made such a comment I would at the very least do a little homework rather than make myself look a fool to the outside world.

AndrewE · 10 Apr 2019

Glenn1969 said:
I saw the £500-600m figure but according to the Pension Regulator the black hole in the scheme is more like £5bn and could be £6bn. Who in their right mind would fund that?

but a) that will be the whole Railway Pension Scheme, and each franchise is just a small part of it
b) also the "deficit" is based on a lot of assumptions and over the long term will probably disappear. After all life expactancy has dropped by 6 months https://www.bmj.com/content/364/bmj.l1123

The institute [of actuaries], which calculates life expectancy on behalf of the UK pensions and insurance industries, expects men who are now aged 65 to die at 86.9 years on average. This is down from last year’s estimate of 87.4 years. The average age of death of women who are now 65 is 89.2 years, down from 89.7 years.

Compared with 2015, projections of life expectancy are down by 13 months …

ainsworth74 · 10 Apr 2019

dk1 said:
Agreed but before I made such a comment I would at the very least do a little homework rather than make myself look a fool to the outside world.

Ah well that's just social media for you :lol:

43096 · 10 Apr 2019

gingerheid said:
Maybe then they are also best placed to carry the reward too. I'm glad the governement have, for once, resisted privatising the reward and nationalising the risk.

The Government will always retain the risk - it is inherent in the system. Rail franchising is basically outsourcing, and it is always those letting the contract that have the ultimate risk.

Stated elsewhere that the pension shortfall dates back to BR times (and the valuations of it) - since privatisation the TOCs have paid in what the fund managers have said is needed to finance it. If that is correct it is hard to see how it is anything other than a DfT liability, and Stagecoach are absolutely correct to have caveated their bid: any sensible company would.

StuartH · 10 Apr 2019

AndrewE said:
but a) that will be the whole Railway Pension Scheme, and each franchise is just a small part of it
b) also the "deficit" is based on a lot of assumptions and over the long term will probably disappear. After all life expactancy has dropped by 6 months https://www.bmj.com/content/364/bmj.l1123

Annuity rates are based on actual long term facts. 'Probably disappearing' doesnt really cut it.

matt_world2004 · 10 Apr 2019

hwl said:
Stagecoach and the bearded one have fair point in that the government is best to carry many of the risks especially as they control Gilt rates which are used in lots of pension calcs especially for employer defined benefit schemes (i.e. contributions and under/over funding judgements).

If the government should carry all the risks the government should then get all the rewards and have the service nationalised.

StuartH · 10 Apr 2019

Its pretty selfish of defined benefit pension members to expect others to carry the risk of their retirement. I can fully understand why the TOC wouldn't want the risk, same as taxpayers dont want the risk.

Agent_Squash · 10 Apr 2019

It’s just daft that the DfT have decided to time this information so stupidly - they’d get away with it with any other company, but Virgin will get the headlines for it and manage to wrangle public opinion against the DfT. I got a notification earlier from Sky about Virgin potentially going away after 22 years - would you ever get that for Chiltern or GWR?

Stagecoach and Virgin are prepared to play dirty over this - they’ve already bit the hand that feeds, it’s only going to get worse.

dk1 · 10 Apr 2019

ainsworth74 said:
Ah well that's just social media for you

Touché lol

AndrewE · 10 Apr 2019

StuartH said:
Annuity rates are based on actual long term facts. 'Probably disappearing' doesn't really cut it.

You didn't bother to look at the BMJ report of the Actuaries' findings then? I don't know why I bothered to paste in their text, which you clearly didn't read either.
Annuity rates were revised downwards a decade or so ago because people were living so much longer... the "facts" from the same actuaries are now that people aren't living longer...
By the way, can you point to a single "fact" about the future (apart from the obvious one that every one of us will die eventually)?

Ticket Man · 10 Apr 2019

AndrewE said:
(apart from the obvious one that every one of us will die eventually)?

How did a thread about a franchise end up with death? :lol:

3141 · 10 Apr 2019

I doubt there is any certainty that the downward trend you quoted will continue throughout the East Midlands franchise. Stagecoach, and any other would-be TOC, would be taking an unquantified risk. Some may be prepared to take it, perhaps calculating that the downward trend will continue. They may be proved right. If they're wrong, their finances could be in a mess. All franchise bids have to take a view about many variables, and we know that different bidders take differing views, as a result of which widely varying bids are made for each franchise. Here's a situation which Stagecoach has decided they cannot accept. Time will show whether they got it right or not.

Bletchleyite · 10 Apr 2019

6Gman said:
But who else should fund an occupational pension scheme other than the employer? The staff work for the TOCs, not the government.

The final salary scheme should be abolished because they are not sustainable. This has happened at pretty much every single company.

If that isn't possible, the Government is really the only place for it to be kept safe.

ainsworth74 · 10 Apr 2019

Bletchleyite said:
The final salary scheme should be abolished because they are not sustainable.

For new entrants perhaps. It would seem grossly unfair to do so to those who are already in the scheme and may well have been in it for decades (and made their retirement plans accordingly!).

Bletchleyite · 10 Apr 2019

ainsworth74 said:
For new entrants perhaps. It would seem grossly unfair to do so to those who are already in the scheme and may well have been in it for decades (and made their retirement plans accordingly!).

Yes, I agree. However to keep it in place for those already holding one, the existing scheme needs vesting in a Government owned holding company and keeping away from the TOCs. The TOCs would then offer the commercially-provided defined-contribution scheme of their choice to new joiners like every other company does.

It does not strike me that it is Stagey being unreasonable here.

sprunt · 10 Apr 2019

Agent_Squash said:
there was incredibly strong brand loyalty on the West Coast in 2012, and I suspect not much has been lost over the years.

Was there? Which other brand of train from London to Scotland/the north-west of England suffered from this brand loyalty?

It's easy to get brand loyalty when you're the only brand. There'll be no shortage of people using Abelio West Coast, or First West Coast, or whatever it is in November.

Bletchleyite · 10 Apr 2019

sprunt said:
Was there? Which other brand of train from London to Scotland/the north-west of England suffered from this brand loyalty?

It's easy to get brand loyalty when you're the only brand. There'll be no shortage of people using Abelio West Coast, or First West Coast, or whatever it is in November.

There were mass campaigns to keep VT. I don't think any other TOC has ever had such loyalty, nor is it likely to.

(I wonder what the generic brand will be? West Coast Railway is too close to the steam train operation, and London Northwestern is already taken).

Bertie the bus · 10 Apr 2019

Bletchleyite said:
Yes, I agree. However to keep it in place for those already holding one, the existing scheme needs vesting in a Government owned holding company and keeping away from the TOCs. The TOCs would then offer the commercially-provided defined-contribution scheme of their choice to new joiners like every other company does.

It does not strike me that it is Stagey being unreasonable here.

So the TOCs can agree to above inflation pay rises year after year, far higher than most other workers get, and the tax payer can deal with their final salary pensions? I can’t see any problem with that at all.

Stagecoach disqualified from three franchise competitions

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