PensionsFeb 28 2022

Potential travel chaos as TfL workers strike over pensions

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Potential travel chaos as TfL workers strike over pensions
Credit: PA Wire/ PA Images

Commuters on the London Underground face two days of travel chaos as Transport for London staff strike over planned pension cuts.

Industrial action, scheduled for March 1 and March 3, will see members of the Rail, Maritime and Transport Union walk out, causing disruption to the underground network.

Workers are protesting plans to find cost savings in the scheme, which has 84,000 members, 26,600 of whom are currently active. 

Pension contributions cost TfL around £375mn a year, though this figure rose to £401mn in 2021, and an independent report commissioned by the Mayor of London suggested that reforms could save as much as £100mn per year.

At present, members contribute up to 5 per cent of salary, while the employer contribution rate is 6.6 per cent. Unions fear the ratio could drop as low as 1:2.5, potentially saving as much as £730mn by 2024/25, according to a report in the Evening Standard.

The scheme itself is relatively healthy, 98 per cent funded and with £13bn in assets as of March 2021.

'Expensive and unreformed'

A report published in December 2020, though, branded the scheme “expensive and unreformed,” and the government’s bailout last summer was contingent on TfL reviewing its pension scheme, with a view to returning the network to financial sustainability.

The 2020 review said: “The scheme is outdated. There are a range of changes that could be considered, including for example using a career average model rather than the current final salary scheme, using the Consumer Prices Index as the scheme’s inflation index rather than the Retail Prices Index and closing the scheme to new entrants.”

“A second issue relating to TfL’s pension scheme is how it is treated. It is classified as a private sector scheme, where TfL is responsible for past and future liabilities, which will grow,” it continued. 

“A government guarantee on these liabilities would reduce TfL’s contributions to the scheme and save the public sector money, noting that this might require legislation. If this is not possible, then reform as has been implemented in the private sector will be essential.

“Modernisation of the pensions model, with government supporting liabilities could generate savings of £100mn pa, and cap future liabilities.”

A subsequent report, commissioned by the mayor last year, is due to be published at the end of March. It has already attracted criticism both from RMT and the trustee of the scheme.

An update on the former’s website in November explained that the trustee had written to the chairperson of the review panel, Sir Brendan Barber, accusing him of “moving the goalposts” with review principles that suggest a “predetermined outcome”.

“The board believes that the review principles lead to the conclusion that the ultimate aim is to close the fund to new entrants or indeed cease future accrual,” RMT’s update said.

It suggested that the results of the next valuation could well show the scheme at or exceeding 100 per cent funding.

RMT’s national executive committee said in November: “There is absolutely no justification for undertaking this review which is predicated on the conclusion that pension benefits must be cut and is anything but independent.

“This review is a poorly disguised attempt to reduce the employers pension contributions as part of TfL’s plan to make job cuts and attack TfL and [London Underground Ltd] workers pay and conditions in the pursuit of self-funding for TfL.

“Once again, RMT re-states our position that no other similar public transport system is able to operate without a public subsidy and we call on the government to abandon this policy before irreparable damage is done to London’s public transport system.”

Benjamin Mercer is a senior reporter at FTAdviser's sister publication Pensions Expert