The government, TfL, the mayor and the National Union of Rail, Maritime and Transport Workers have been at loggerheads for months over the scale of the government’s commitments to the underground network, and the conditions attached thereto.
Of particular focus has been the TfL Pension Scheme, and the review of the scheme by Sir Brendan Barber that the government mandated as part of a bailout package agreed in 2021.
Pension contributions cost TfL approximately £375mn a year, though this figure rose to £401mn in 2021.
A report commissioned by the mayor of London claimed that reforms could save as much as £100mn a year for the transport network, and the Barber review — in setting out and modelling four options for alternative scheme designs — produced savings of between £79.3mn and £182.4mn for alternative final salary options, and up to £154.4mn a year for career average revalued earnings schemes.
This led unions to threaten industrial action over what they parsed as benefit cuts, and RMT’s London Underground workers subsequently went on strike in March, June and August.
There are also unnecessary and damaging strings attached to this deal, none more malicious than the government trying to force TfL to rush through significant reform to TfL’s pension scheme. Sadiq Khan, mayor of LondonThe new deal mandates TfL to set out a plan for pension reform options by September 30 and an implementation plan by January 31 2023, with the aim being to reduce future service liabilities by around £100mn as part of a broader plan to make the transport network sustainable.
Transport secretary Grant Shapps said: “For over two years now we’ve time and again shown our unwavering commitment to London and the transport network it depends on, but we have to be fair to taxpayers across the entire country.
“This deal more than delivers for Londoners and even matches the mayor’s own pre-pandemic spending plans. But for this to work the mayor must follow through on his promises to get TfL back on a steady financial footing, stop relying on government bailouts, and take responsibility for his actions. Now is the time to put politics to one side and get on with the job — Londoners depend on it.”
The deal and the pensions implications
The government made a “final offer” to TfL bosses in July, though the new deal is slightly more generous than that. The Department for Transport said it would support nearly £3.6bn of projects agreed with TfL and provide just under £1.2bn in funding, taking the total amount of government support above £6bn.
It said this would be sufficient to match London mayor Sadiq Khan’s pre-pandemic spending plans, protecting the network against potential hits to its revenue from continuing pandemic-related uncertainty, while also allowing for the delivery of a number of projects, including new Piccadilly Line trains, upgrades across a number of London Underground lines, repairs to Hammersmith Bridge, and the creation of an independent property company slated to build 20,000 homes on TfL land over the next 10 years.
In exchange, the mayor agreed to continue work on the introduction of driverless trains, as well as accepting the need for pension reforms that have angered the unions. Despite accepting the offer, Khan warned that the package was “less than ideal” and would not plug a “significant funding gap”, likely leading to an increase in fares and cuts to some bus services.
“There are also unnecessary and damaging strings attached to this deal, none more malicious than the government trying to force TfL to rush through significant reform to TfL’s pension scheme,” he said.
“It’s no secret that conditions placed on TfL as part of previous deals have been a primary motivator for strikes by transport workers. This latest deal seems designed to provoke further industrial action, which would lead to more disruption, misery for commuters, and economic damage.”
In a letter to Khan laying out the terms of the deal, Shapps reiterated that the mayor’s own independent report in 2020 found the TfL Pension Scheme to be “expensive, outdated and in need of modernisation”.
As part of the funding package, TfL has agreed to “consider the findings” of the most recent independent review and, by September 13, to “provide a response to the final report alongside a work plan, setting out the steps that would be necessary for moving TfL’s pension fund into a long-term, financially sustainable position”, the letter explained.
“This work plan must include detail on what resources will be committed to achieving this objective,” it added.
A meeting between the government and TfL will then take place on September 20 to discuss the proceeding and agree next steps. TfL will then have until September 30 to submit “two categories of options for future service reform with no more than two sub-options under each, all of which will aim to reduce future service liabilities by circa £100mn”.
TfL will be required to explain why it has ruled out other potential avenues for reform. It will also be required to set out the core design principles for each sub-option chosen, including salary risk, retirement age, indexation and possible accrual rates. Additionally, it will be required to set out its assessment of how each sub-option meets certain criteria, including deliverability, affordability, sustainability and fairness, and how these compare with “other equivalent pension schemes”.
Finally, it will have to set out its view “on what [government] support is needed to progress the shortlisted options alongside proposals for how past service liabilities will be managed under these proposals”, the letter said.
Once this is complete, TfL and Khan will agree a final, detailed proposal with the government covering recommended changes to future service benefits and past service liabilities, setting out an implementation plan by January 31 2023.
In the event the changes require that members be consulted, that consultation must have begun by May 1.
Failure to comply with any of these terms could see the government altering the grant payments agreed as part of the settlement.
More strikes likely
Responding to news of the deal, RMT threatened that more strikes are “likely” since the deal “appears conditional on attacks on workers’ pensions, potential job losses, and a push for pay restraint in the future, despite the astronomical rise in inflation and an escalating cost of living crisis”.
The union also criticised plans for driverless trains, which it said would involve “huge costs” and “safety concerns”, and announced it would hold a “save London Transport” protest on the night of August 31, with left-wing US Senator Bernie Sanders, who is visiting the UK, joining the rally.
RMT general secretary Mick Lynch said: “This deal negotiated in secret by TfL and government ministers will likely see our members’ pensions attacked and further pay restraint in the future, coupled with driverless trains.
“Grant Shapps’ attack on tube workers would be unacceptable at any time, but in an escalating cost of living crisis it is shameful and will be resisted through further strike action.”
Lynch said TfL needed to “stand up to Grant Shapps” and “demand a deal that serves all the people of London and addresses the real concerns of London Transport workers who keep the capital running”.
“This rally [on August 31] will send a message that RMT and other transport unions will not tolerate attacks on workers pay and conditions or cuts to public services,” he added.
Benjamin Mercer is senior reporter at Pensions Expert, FTAdviser's sister publication
