Although Transport for London was supposed to agree a frequently postponed “final detailed proposal” for pension reform with the government by 17 March, it is obvious from the exchange of letters released the previous day that a realistic proposal, let alone a “final detailed” one, is a long way away.
Like a divorcing couple, each arguing that the other should take custody of a badly behaved pet, neither the government nor TfL wants to take responsibility for the damage caused by the breakdown of their relationship.
TfL would like to remove what they claim are the financial risks to them of a large defined benefit scheme. Although the pension fund has a healthy surplus, they worry that if markets and interest rates move the wrong way there could be a deficit at some future valuation they would need to fund.
Of course, there will be ups and downs with any long-term investments. But that very long-term nature of the pension scheme means that, in reality, the risks to TfL of market volatility are actually quite low. Even if the funding position became poor at one particular valuation point, it would correct as markets recovered. And the fund’s current healthy surplus provides a strong buffer against future volatility.
The government’s motivation is primarily political and Conservative members of the London Assembly have long moaned and complained about the fact that TfL staff have decent pensions. It has never been clear to me quite why Tories dislike the idea of working people having a good retirement, but I suspect there is a strong element of thinking we’re getting above ourselves.
Although Tories say they want to reduce the costs of the TfL pension fund, they are also very clear that they do not want to take on any of the risks involved in reducing that cost. They have ruled out the simplest option, which is to provide a Crown Guarantee. Doing so would save the TfL fund at least £16 million a year which at present has to go to the Pension Protection fund, and mean different investment strategies could be used to target higher future returns.
Both the government and TfL say protecting the benefits scheme members have built to date is a priority. They now also both accept that major changes will require legislation in parliament. The Department for Transport (DfT) says, “this will be subject to cross-government agreement, identifying a suitable legislative vehicle and available parliamentary time.” This suggests it won’t be a quick process!
TfL points out that as the government has ruled out so many possible options, the most realistic choice for change would be moving the current scheme’s assets and liabilities into the Local Government Pension Scheme (LGPS). But they also ask the government to provide a rationale for supporting that idea and how it would save money. The truth is it wouldn’t. In fact, it would be a hugely expensive exercise that would generate large fees for lawyers and actuaries and just move cost from one government budget to another.
It also seems to miss the point that the scheme’s assets don’t belong to TfL, but to the pension fund members under the stewardship of the fund’s trustees. It is not clear either why the trustees of the LGPS would want to take on the risks and costs associated with a transfer.
There are other questions TfL has put to the government. For example, there are a large number of “protected persons” in the current scheme whose benefits can only be changed if those people give individual consent – something that seems unlikely to happen.
In effect TfL have asked the DfT to show them their homework with a strong suggestion that they haven’t actually done any.
So, what happens next? TfL has passed the ball back to the DfT to answer the questions they have asked and to explain exactly what process the department intends to follow and how. They have pointed out that until there are answers to those questions no progress can be made towards a “final proposal” and that the current timescale for starting consultation is not achievable.
ASLEF and the other trade unions have argued all along that changes to the current pension scheme are unnecessary. TfL has already been able to make a huge reduction – around £70 million – in its costs. The scheme is well managed with a healthy surplus. All the review of it has achieved so far is create uncertainty for members, large extra costs for TfL and industrial action that will cost the Exchequer much more than it can save. In a sensible world it would be quietly shelved.
Sadly, good sense is not a hallmark of the present government. Protecting our pensions is one aspect of our current dispute, along with working conditions and agreements. The passing of the 17 March deadline was more of a damp squib than a big bang. We will need to be ready to take action again to make sure any changes to TfL pensions come through agreement and negotiation.
Finn Brennan is London Underground district organiser for train drivers’ union ASLEF. Follow Finn on Twitter. This is slightly edited update of an article which originally appeared on an ASLEF website.
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“Of course, there will be ups and downs with any long-term investments. But that very long-term nature of the pension scheme means that, in reality, the risks to TfL of market volatility are actually quite low.”
Do you actually know anything pension funding or the risks involved? Lots of “safe” funded DB schemes run out of money and had to be rescued by the employee.
And to say that the tories don’t like “working class” people having a decent pension is just a very crass statement. I think they along with a lot of other people who have to pay into a DC pension with bad return – resent having to pay and Fund public sector workers with gold plated pensions.
There is much in this post which makes good sense, but it falls into a common misunderstanding in arguing that “the scheme’s assets don’t belong to TfL, but to the pension fund members under the stewardship of the fund’s trustees.”
The assets don’t belong to the members at all, they exist to underpin the rights of members to receive their future and current pensions. So long as those pension entitlements are protected, the members have no rights over the underlying assets, not should they have.
That’s not nit picking – or at least not just not picking. Trade unions shouldn’t be chasing after the assets, they should be working to make sure that pension rights are not put at risk. Those goals are not unrelated, but they are not the same.