Rail franchise row moves to High Court

Discussion in 'UK Railway Discussion' started by Jorge Da Silva, 18 Jan 2020.

  1. Bletchleyite

    Bletchleyite Veteran Member

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    It's not quite that simple - poorly performing investments can be the cause too. This is why switching to investment based pensions derisks it for them - the risk is then with the individual, not the company.
     
  2. Elecman

    Elecman Established Member

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    Well they didnt with the Jarvis sections of the Railway Pension Scheme, when Jarvis went Insolvent
     
  3. Meerkat

    Meerkat Established Member

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    I thought the DfT were expecting the franchisee to cover their share of the pot forever, but what that share is hadn’t been determined at the bidding point? So they were taking on a liability actuaries couldn’t even have a guess at.
     
  4. Carlisle

    Carlisle Established Member

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    Thats unlikely otherwise the highly qualified lawyers & accountants wouldn’t have allowed their owning groups to accept their winning bids for WCP, or EMR. Remember Arriva voluntarily withdrew from the wales franchise bid, despite no interference from the DFT to blame there
     
    Last edited: 18 Jan 2020
  5. fishtastic

    fishtastic Member

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    But that's the point, if investment returns are too poor then they have to increase their contributions in a defined benefit pension. If there is a shortfall then surely it lies with the company that had decided on its contribution level for the past 20 years. Virgin didn't want to be held liable for a deficit in the future which would have mainly been caused by themselves (I'm going to assume they were under the limit set by HMRC).

    The problem with defined benefits pension is someone has to pick up the tab for ensuring the money is there. One company I used to work for scrapped and ended any further payments to the final salary scheme; at that time it's contribution had hit 25% of the members salaries and it still wasn't sufficient (I wasn't a member as I joined a decade after they had closed entry).
     
  6. WatcherZero

    WatcherZero Established Member

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    The tocs had been putting in their required amount plus a little extra to help with the shortfall. Its the underperformance of the fund itself and those residual final salary pensions which were never fully funded.

    Of the 340,000 pension fund members 99,653 are pre-nationalisation final salary and in essence the people whove joined since have been subsidising their payments. However its got to the stage where the fund needs bailing out and the Government is trying to mae the Tocs the ones that do it even though it is the actual underwriter of the fund and responsible for shortfalls.

    Its an pensions industry wide issue that the final salaries relied on ever increasing members being paid ever higher salaries deflating the cost of the earlier pensions like a pyramid scheme, thats stopped happening with stagnant wage growth, slowing membership numbers and an economy thats stagnated.
     
    Last edited: 19 Jan 2020
  7. JonathanH

    JonathanH Established Member

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    That really isn't true. There is a finite price at which an insurer will take the liabilities off the hands of any pension scheme sponsor and any actuary has a reasonable idea of what that price is.

    There really isn't any point funding at that level if the scheme being operated has tacit government support and is expected to remain open to new members over a long term period.

    That's not true either. If salary growth is lower than assumed, then the past liabilities are lower than originally expected so wage growth is not an issue. Falling expected investment returns above inflation and whether your investments perform as well as expected are what leads to a shortfall.

    While there have been inherent cross subsidies in defined benefit plans, they have only become 'pyramid schemes' since the drawbridges were brought up and funding moved closer to insurer pricing meaning. In some cases today's workers who aren't in the schemes are supporting the past pensions of their historic colleages through surpressed wage growth affected by the need for their employer to meet past shortfalls.
     
  8. Mag_seven

    Mag_seven Established Member

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    I remember at the time of privatisation all sorts of promises were made about railway pensions - one by one they appear to have been broken so much so that there is now a very real threat of a national rail strike over the pensions issue.
     
  9. Robertj21a

    Robertj21a Established Member

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    What are you expecting that to achieve ?
     
  10. WatcherZero

    WatcherZero Established Member

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    Present wage growth doesn't lower previous liabilities, that is governed by inflation, specifically the CPI rate as they are index linked. If the investments are producing a better return than inflation then they will be generating a surplus, if not then they will be generating a deficit. A few bad investments may take a long time and additional finance being put into the fund to recover. If wages are growing faster than CPI then more money is going into the fund than required to meet its obligations, if wages aren't keeping pace with inflation then less money than required is being put in.
     
  11. Meerkat

    Meerkat Established Member

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    AIUI the TOCs were expected to fund something that hadn’t been decided yet - the regulator?? was yet to decide what the shortfall was. Therefore an insurer would be unlikely to be interested.
     
  12. JonathanH

    JonathanH Established Member

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    Expectations of present wage growth does lower the previous liabilities for current active members (which is a reasonable proportion of liabilities in an open pension scheme). I agree that inflation is the more relevant issue for the liabilities of former members.

    Only if the contribution rate (including shortfall contributions) is solely expressed as a percentage of pay.

    If the contributions are paid as lump sums they are not linked to payroll.
     
  13. Wolfie

    Wolfie Established Member

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    Frankly you are thinking about this solely from the perspective of the railway. There is something much more important and fundamental at stake here, namely the obligation of the State to act lawfully and reasonably. That will become even more important after Brexit when certain EU checks and balances will be removed. Until recently my day job for nearly a decade, in two different departments, was handling litigation against the Government.
    I have to say, given DfT's track record, l would be far from surprised if they lost this litigation. The most likely outcome though would be large scale compensation not a reopening of the competition.
     
  14. 43096

    43096 Established Member

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    It’s far too late to re-open the competition - although the South Eastern contract was never actually awarded. Stagecoach (and the others) will be after compensation - particularly wanting reimbursement for bidding costs.
     
  15. Wolfie

    Wolfie Established Member

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    Plus loss of profits... We are in violent agreement over the competitions.
     
  16. 43096

    43096 Established Member

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    Yep! If they win it would be way more profitable than actually winning the contract.
     
  17. Nicholas Lewis

    Nicholas Lewis Member

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    Also interest rates on bonds are now very low when historically they've been at or above inflation run rates so even capital protection is nigh on impossible. Furthermore people are living several years longer than what actuaries were using 30 years ago also putting the fund under pressure. There also a fair few people in the ex BR scheme that left under the BR annual reorganisation in the 80's which resulted in people being paid off as well as receiving pension year tops all this is coming home to roost now but this element of the fund is backstopped by the DofT. For the rest of us its going to need an injection of several hundred million pounds per year which will come from employees when schemes triennial valuations are presented showing schemes in deficit along with increased employee contributions. For NR thats been factored into the CP settlements so its not unreasonable to expect the TOCs to be treated the same way as they cant be expected to second guess what the pension trustees will require.
     
  18. LNW-GW Joint

    LNW-GW Joint Veteran Member

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    Modern Railways has tweeted that Arriva has reached a confidential out of court settlement with DfT over its disqualification claim over the East Midlands franchise.
    (Also retweeted by the BBC at 1644 in this: https://www.bbc.co.uk/news/live/business-51150421).
    The claims by Stagecoach/Virgin/SNCF over EMR, SE and WCP continue.
     
  19. Edders23

    Edders23 Member

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    we need a thumbs up smiley
     
  20. Edders23

    Edders23 Member

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    I think the problem is that a lot of very big pay deals are going through to settle long running disputes and this will have a big knock on effect on pension pots as much more will need to go in. That could potentially cause a company to fail so if the uk government is asking bidders to commit to an open ended pension liability then for many businesses that is too big a risk. I think the government were wrong to do so and might lose this
     
  21. Robertj21a

    Robertj21a Established Member

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    Arriva reported to have agreed a settlement and, therefore, withdrawn their claim.
     
  22. Brissle Girl

    Brissle Girl Member

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    Err... as was posted three posts earlier.
     
  23. HH

    HH Established Member

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    This is simply not true. All Railway Pensions are still Final Salary based. The only thing that has changed is that the retirement age has moved from 60 to 62 for most staff.

    This is also not true. The SWF bids were entered before The Pensions Regulator kickstarted the latest railway pensions issue. Neither bid was deemed non-compliant.
     
  24. hwl

    hwl Established Member

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    Guardian take on things raising a couple of interesting point on DfT competence and secrecy culture:

    https://www.theguardian.com/politic...y-was-not-told-of-plan-to-settle-rail-dispute


     
  25. hwl

    hwl Established Member

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    Stagecoach did mention to DfT that what they were asking for wasn't deliverable in come cases (e.g. due to power supplies etc.) and bid on what was deliverable.
     
  26. Meerkat

    Meerkat Established Member

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    Maybe a question for a whole new thread but at what point do we need an independent review of the DfT?
    Calamity after calamity seems to come back to the DfT but they never accept the blame and no one loses their position.
    Are elected politicians running the DfT or has it gone rogue?
     
  27. hwl

    hwl Established Member

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    DfT funding cuts so they don't have the staff headcount. Lots of other issues flow from this as they are mostly in headless chicken mode lurching for crisis to crisis.
     
  28. HH

    HH Established Member

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    Yes, but that wasn't deemed non-compliant. Of course it does call into question why DfT asked for things that were not achievable within the available infrastructure, but no-one has accused DfT of competence (or Network Rail for that matter, given what has happened at Waterloo)!
     
  29. Roast Veg

    Roast Veg Member

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    Would the Arriva settlement fall under an FoI request, despite its confidentiality?
     
  30. HH

    HH Established Member

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    I doubt it. Arriva would certainly object. Even Franchise Agreements have the numbers redacted.
     

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