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Rail firms face £7.5bn pensions gap, says regulator | Rail firms face £7.5bn pensions gap, says regulator |
(about 11 hours later) | |
Train companies face a pensions black hole of up to £7.5bn, the Pensions Regulator has warned. | Train companies face a pensions black hole of up to £7.5bn, the Pensions Regulator has warned. |
The warning was made in a letter to lawyers representing the rail industry trade body, the Rail Delivery Group. | The warning was made in a letter to lawyers representing the rail industry trade body, the Rail Delivery Group. |
The issue has burst into the open after it led the Department for Transport (DfT) to bar Stagecoach from bidding for three franchises. | The issue has burst into the open after it led the Department for Transport (DfT) to bar Stagecoach from bidding for three franchises. |
Virgin Trains, in which Stagecoach owns 49%, is likely to cease operations as a result. | |
Stagecoach said it had been told the exclusion was because of its refusal to shoulder responsibility for unquantified extra pension contributions. | Stagecoach said it had been told the exclusion was because of its refusal to shoulder responsibility for unquantified extra pension contributions. |
It said the decision was evidence that the current system of rail franchising "was not fit for purpose". | It said the decision was evidence that the current system of rail franchising "was not fit for purpose". |
The Pensions Regulator has been investigating a potential shortfall in train company pensions for some time. | The Pensions Regulator has been investigating a potential shortfall in train company pensions for some time. |
In a letter sent last June during discussions with the industry about a possible funding solution, it said the deficit "has increased from £4.8bn to £7.5bn in just three years (which drives our desire to ensure substantially more cash is paid into the sections, commencing in the short term)". | In a letter sent last June during discussions with the industry about a possible funding solution, it said the deficit "has increased from £4.8bn to £7.5bn in just three years (which drives our desire to ensure substantially more cash is paid into the sections, commencing in the short term)". |
The regulator noted that the DfT "has remained consistent that the [pension schemes] are sponsored by privatised companies that must take responsibility". | The regulator noted that the DfT "has remained consistent that the [pension schemes] are sponsored by privatised companies that must take responsibility". |
'Severe' consequences | 'Severe' consequences |
The letter was sent to Calum Cooper, a partner in the pensions consultancy Hymans, which has been advising the Rail Delivery Group. | The letter was sent to Calum Cooper, a partner in the pensions consultancy Hymans, which has been advising the Rail Delivery Group. |
The group came up with a proposed solution that would have involved splitting the cost between train companies and the DfT. | The group came up with a proposed solution that would have involved splitting the cost between train companies and the DfT. |
On 1 April, the chief executive of the Rail Delivery Group, Paul Plummer, wrote to Rail Minister Andrew Jones, urging him to adopt the scheme. | On 1 April, the chief executive of the Rail Delivery Group, Paul Plummer, wrote to Rail Minister Andrew Jones, urging him to adopt the scheme. |
If he did not, Mr Plummer said, the consequences would be "severe". | If he did not, Mr Plummer said, the consequences would be "severe". |
The Pensions Regulator might demand an immediate £2.6bn increase in contributions, Mr Plummer said, and the ability of the DfT to award future franchises would be put in jeopardy. | The Pensions Regulator might demand an immediate £2.6bn increase in contributions, Mr Plummer said, and the ability of the DfT to award future franchises would be put in jeopardy. |
"Ultimately there could be a very significant impact on the taxpayer through adverse financial impact on franchise bids," he said. | "Ultimately there could be a very significant impact on the taxpayer through adverse financial impact on franchise bids," he said. |
"There would almost certainly be widespread industrial action, with the significant disruption to customers, cost and reputational damage that goes with it." | "There would almost certainly be widespread industrial action, with the significant disruption to customers, cost and reputational damage that goes with it." |
Rail Delivery Group sources said the government had not yet replied to its proposal. | Rail Delivery Group sources said the government had not yet replied to its proposal. |
The DfT said it had "total confidence" in its franchise award process. | The DfT said it had "total confidence" in its franchise award process. |
It said Stagecoach did not accept the "risk-sharing mechanism" it had proposed for the three franchises and that it had "proposed significant changes to the contracts". | It said Stagecoach did not accept the "risk-sharing mechanism" it had proposed for the three franchises and that it had "proposed significant changes to the contracts". |
"DfT could not accept these changes and operate a fair competition," the department said. | "DfT could not accept these changes and operate a fair competition," the department said. |
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