Pensions Bill

Written evidence from The National Union of Rail, Maritime and Transport Workers (PB 16)

1. Introduction

1.1 The National Union of Rail, Maritime and Transport Workers (RMT) welcomes the opportunity to contribute to the Works and Pensions Select Committee call for written evidence following the Governments publication of the White Paper setting out its plans to introduce a new Singe-Tier State Pension. The RMT organises around 80,000 workers in all sectors of the transport industry and negotiates, on behalf of our members, with some 150 employers. With over 44,000 members employed on the railways, RMT is the largest of the rail unions.

2. Executive summary

2.1 Following the Department for Works and Pensions consultation paper, "Abolition of Contracting Out – Consultation on a Statutory Override for Protected Persons Regulations", the RMT would like to take this opportunity to raise with the House of Commons Public Bill Committee our concerns, and more importantly our total rejection, of these proposals which are no more than an attack on the promises made by government prior to privatisation of the railways and parts of London Underground (LUL).

2.2 The government’s proposal to introduce statutory legislation to override Protected Persons Regulations so that employers can increase contributions or/and change benefits of those employees with protection status would be to the detriment of promises made prior to privatisation. Let us not forget that it was government policy which dictated the privatisation of the railways and parts of London Underground (LUL) which went against the wishes of those employed in these formally nationalised industries. Many of these workers would have made life changing decisions based on the promises given to them by Parliament and it would be totally wrong to now break this confidence.

2.3 It is also important that we highlight a number of technical points in relation to the rules of the Railways Pension Scheme which will see members’ future pension benefits significantly reduced as a result of the introduction of the Single Tier State Pension and the abolition of Contracting Out.

2.4 The White Paper confirms the previous announcement that the State Pension Age (SPA) will increase to age 67 between 2026 and 2028. The RMT is totally opposed to the increase in the State Pension Age (SPA).

3. POWER TO AMEND SCHEMES TO REFLECT ABOLITION OF CONTRACTING- OUT

SCHEDULE 14 (Clause 21)

The power overrides other legislation

3.1 The Governments proposal to introduce statutory legislation to override Protected Persons Regulations so that employers can increase contributions or/and change benefits of those employees with protection status would be to the detriment of promises made prior to privatisation of the railway industry and parts of London Underground.

3.2 For those former British Rail employees this commitment of pension protection is enshrined within the Railways Act 1993 and parliamentary order known as The Railways Pensions (Protection and Designation of Schemes) Order 1994 (‘’the Order’’) which offers the following protection:

’’The Order requires that your pension rights in respect of future employment must be at least as favorable as the rights which the BR Pension Scheme provided on 31 May 1994’’ (Your Protected Rights, see attached One)."

3.3 Any changes would also be contrary to the direct assurances given to rail unions by the Secretary of State for Transport, Justin Greening MP when he met the TUC and trade unions, on 7th December 2011 that the Railways Pension Scheme would not be affected in any way as a consequence of the Red Tape Challenge.

3.4 The promise of protection for those LUL workers whose employment switched under Public-Private Partnership Agreements (PPP) is contained under the London Transport Pension Arrangement Order 2000 that:

"5 (3) if the scheme provided by the employer is the LRT Pension Fund, the appropriate provision is provision under which the pension rights which accrue to or in respect of the protected person under the scheme in respect of his service after his relevant transaction are overall material at least as good as the pension rights accruing to or in respect of him under the LRT Pension Fund in respect of service immediately before that transaction’’ (Statutory Instrument 200 No.3368,The London Transport Pension Arrangements Order 2000, see attachment Two)."

3.5 This promise is further endorsed by the then Deputy Prime Minister:-

"The LRT Pension Fund will be structured to guarantee your rights to remain within the fund, while retaining a single board of trustees and a common governance’’ (Letter to LUL employees from John Prescott MP, 15 June 1999, see attachment three)."

3.6 The RMT and other railway union wrote to the Department of Transport on 19th April 2013 and highlighting our concerns on these proposals. The letter was also sent to the Minister of State for Pensions and a response was received from Steve Webb MP on 11th May 2013.

3.7 While the letter states that the government is undecided on this issue it does not rule out the possibility of introducing overriding legislation. While the Minister wants to hear from all ‘stakeholders’ this does not change the fact that promises were made prior to privatization and these promises should be honored.

4. IMPLICATIONS TO THE RAILWAYS PENSION SCHEME AS A RESULT OF THE INTRODUCTION OF THE SINGLE TIER STATE PENSION

Offset

4.1 It is essential that the House of Commons Public Bill Committee fully understand the implications of the single tier state pension on schemes with a state pension offset and shared cost arrangement.

4.2 The Railways Pension Scheme has built into the rules of the fund a one and half times Basic State Pension offset. The offset is used to reduce members headline salary which subsequently results in a members pensionable pay. Presently this offset in the Railways Pension Scheme is approximately £8,580.10 and increases annually in line with the Basic State Pension.

4.3 We are concerned about the possibility that if the Basic State Pension is replaced from 2016 by the Single Tier State Pension this offset could increase from £8,580.10 to £11,232.00. This would result in members pensionable pay being significantly reduced going forward and the true value of their occupational retirement benefits also being significantly reduced.

4.4 While this may be a matter for the Trust Deed and Rules of a particular scheme, an increase in the offset and allowing employers to unilaterally alter benefits or/and contributions has the potential of members receiving a ‘double whammy’ in respect of reduced benefits. Any increase in state pension benefits would be wiped out by the above scenario. Whether a member is protected or not by the legislation referred to above, this applies to both sets of workers.

4.5 It also needs to be remembered that any reduction in pensionable pay going forward would result in employers making further savings and making a profit at the expense of pension scheme members. Why should these already profitable companies make further financial gains at the expense of workers future retirement benefits.

4.6 The RMT demand a binding assurance that the i ntroduction of the Single Tier State P ension will be structured in such a way so that the R ailways P ension S cheme offset will continue to be linked to the existing value of the B asic S tate P ension and only increased in line with current practice.

Shared Cost Contribution Arrangement

4.7 While many schemes have a Balance of Cost arrangement, the Railways Pension Scheme contribution rate is Shared Cost. Therefore any deficit or future service contribution rate is shared between the employer and the member on a 60/40 basis.

4.8 This arrangement is extremely popular amongst sponsoring employers and any variation is likely to be met with hostility by rail companies. However, as a result of this arrangement member’s contribution rates are on average throughout the Railways Pension Scheme in excess of 12%. Any further increases in contributions, whether the Shared Cost arrangement is broken or not, could ultimately result in members leaving the scheme regardless of whether they are protected or not.

4.9 If employers are allowed to change benefits in a Shared Cost scheme then this is also likely to have a knock on affect in regards to the principle of sharing the pension cost and the level of benefit being reduced by the employer.

4.10 Under the government’s proposal the option of increasing member contribution is unlikely as the employers share would have to increase, unless the Shared Cost arrangement was broken. It is therefore likely that benefit changes would be the preferred option of employers.

4.11 Some employers have already reacted to the increased costs of the Railways Pension Scheme by making changes for post-privatisation members: closing their section to new entrants, introducing a waiting period, changing the elements of pay which are counted as pensionable, changing early retirement factors, and changing the contribution ratio. All of this adds to complexity and fragmentation. Clearly these changes have been made as a result of consultation with the trustees and relevant trade union, not by introducing unpopular government legislation.

4.12 However, any benefit changes would flow into the Shared Cost Contribution Rate for future service with both sides of this arrangement receiving a reduction in contribution. Therefore for the employers NIC rebate to be recovered in full the benefits changes would have to be excess of 3.4%. Such an undertaking would see all pension scheme members’ future benefits reduced to such an extent that any gain in state pension provision would once again be eliminated and would see workers worse off.

5. POWER TO AMMEND SCHEMES TO REFLECT ABOLITION OF CONTRACTING-OUT

SCHEDULE 14 (Clause 21)

5.1 The RMT are very concerned that the government should even consider allowing employers the right to bypass trustees consent as a result of their own policy.

5.2 We reject the view made by some employers that trustee consent is a hindrance and that making changes to scheme rules is often problematic. It is the experience of the RMT that Member Nominated Trustees play a valuable role in the everyday running of Railways Pension Scheme and Transport for London Pension Fund. Those employers who feel that somehow trustees are a problem when making decision should be reminded that when they decided to enter those former nationalised industries they did so knowing the commercial risk.

5.3 Furthermore this proposal is contrary to the principles of the Pensions Act 1995, (Part One, 16) requirement for Member Nominated Trustee on trustee boards. The very fact that employer representatives in the majority instances are involved in the decision making process on a relevant trustee boards can only lead one to believe that this proposal is aimed at excluding Member Nominated Trustees from the decision making progress.

5.4 This proposal is nothing more than disingenuous to Member Nominated Trustees who work alongside employers within the rail industry for the benefit of all beneficiaries. Excluding Member Nominated Trustees from the decision making process would undermine the very fabric of the member involvement.

5.5 Make no mistake many rail companies have been waiting for this opportunity to ride ‘roughshod’ over protections and trustee consent for a very long time. This is illustrated by the recent decision by management to cease future accrual in the Balfour Beatty Pension Fund. This particular pension scheme does not have protected persons and as a result management are taking the opportunity to close this Defined Benefit scheme and offer members an inferior Defined Contribution arrangement.

5.6 If the government’s proposal was accepted this type of ‘macho management’ behavior would be repeated throughout rail and LUL. This would lead to only one conclusion that future cooperation could be put at risk which would result in industrial unrest.

5.7 It also needs to be pointed out that this element of the government’s proposal not only snubs the role of the trustee but threatens to disturb the principles of collective bargaining which is used throughout rail and LUL when discussing pensions. This collective bargaining machinery has been extremely successful in the past and should not be bypassed because employers want to railroad through detrimental pension changes.

5.8 An illustration of effective industrial relations policy is highlighted by the conclusions reached by the final Railways Commission Report in 2008. The report makes a number of recommendations which not only protected scheme members future pension entitlements but propose to keep the Railways Pension Scheme affordable for rail employers. Without the proactive and positive contributions made by trade unions through the compiling of this report the findings would have been difficult to conclude.

5.9 This view is endorsed by the McNulty Value for Money review which makes the following statement:

"Changes to the Railways Pension Scheme (RPS) are a matter of discussion between employers and members’ representatives, and will be subject to the agreement of the trustees of the RPS" (McNulty Value for Money Review, May 2011).

5.10 One can conclude from the above statement that the McNulty agrees that the tried and tested collective bargaining structure is an adequate method in dealing and resolving pension issues. This was the message that trade unions received during the discussions with the McNulty review team.

5.11 If the government insists on going ahead with their proposals to override protective legislation and bypass trustee consent this will fly in the face of past negotiations and will be to the detriment of future trade union cooperation.

5.12 We would request that you urgently give reassurances that the promises given by Justin Greening MP in 2011 that the Railways Pension Scheme will not be interfered with as a result of government policy are reconfirmed.

5.13 We would further add that these promises are also given to those protected person within LUL who were also received the same assurance in 1999 from the then Deputy Prime Minister, John Prescott MP.

6. INCREASE IN THE PENSIONABLE AGE

6.1 The RMT is totally opposed to the increase in the SPA which is clearly an attack on the poorest in society to make them work longer and to pay for economic crisis they did not cause.

6.2 The claim by the Government that the need to increase SPA is essential to create a fair framework for future retirement provision is in the view of the RMT more to do with ‘balancing the books’. Many workers the RMT represent work long hours and carryout physically demanding jobs and the effect of increasing the SPA is likely only to reduce the amount of time they will enjoy in retirement.

6.3 The logic of increasing the SPA is clearly flawed as the later people work the more this reduces the opportunity for younger workers to find employment, which will only increase the burden on the state. RMT policy, along with the wider trade union movement, is to reduce the amount of time people spend at work before retirement, and to increase the amount of time in retirement.

June 2013