Train operators' legal battle with government kicks off

Train operators' legal battle with government kicks off

Train operators will argue that the government has unfairly excluded them from rail contracts over its stance on pensions, in a High Court case that begins on Monday.

In an action brought by Stagecoach, Virgin Trains and French operator Société Nationale des Chemins de fer Français, the government is accused of illegally kicking franchises out of tender processes for refusing to accept large risks associated with funding the Railways Pension Scheme. German operator Arriva has filed a similar complaint.

In May 2019, it emerged that the row hinges on who picks up the bill for contributions to the RPS that go above and beyond the “cost-sharing” agreement in place since privatisation in 1994, which sees employers contribute 60 per cent and members 40 per cent.

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According to excluded franchise bidder Stagecoach, RPS trustees assumed the government stood behind any funding shortfall, but an investigation by the Pensions Regulator last year questioned whether this was guaranteed.

The regulator reportedly found that a £7.5bn deficit existed across the franchise sections, requiring large cash injections and exposing train operating companies to significant new risks, although this figure is highly contested.

The National Union of Rail, Maritime and Transport Workers also threatened strike action if the dispute has a negative impact on members of the scheme.

Patrick McCall, senior partner at Virgin, said at the launch of the actions in May last year: “The department for Transport has ignored [our] track record and instead focused on which bidder is reckless enough to take on various unquantifiable risks, such as pensions.”

Reacting to exclusion from the tender process in April, Stagecoach chief executive Martin Griffiths said the scheme’s viability was further threatened by the withdrawal of support by the department for Transport.

“Without ongoing government support for the long-term funding of railway pensions, TPR has indicated that an additional £5bn to £6bn would be needed to plug the gap in train company pensions,” he said at the time.

Angus Peters is editor of Pensions Expert

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