Railways pension scheme (RPS)

The Railways Pension Scheme (RPS) is the final salary Defined Benefit (DB) scheme that replaced the old British Rail Pension Scheme (BRPS) following privatisation of British Rail. It is an industry-wide umbrella scheme with a number of different sections.

Pensioners and preserved pensioner members of the BRPS on 30 September 2004 were transferred into a separate section of the RPS – the 1994 Pensioners Section. Active members of the scheme were transferred into a shared cost arrangement (sca).

Employees and members of the BRPS at midnight on 4 November 1993 were “protected persons”. They had a legal right to pension provision for their future employment which would be “no less favourable than the relevant pension rights which he had under [the BRPS].” This protection is retained unless and until they voluntarily leave their employer, withdraw from the RPS or agree to waive their protected status. An individual who moves voluntarily from one railway industry employer to another loses protected status for future accrual, but not the “indefeasible right” to participate in the RPS.

A valuation of the RPS (sca) in 2004 showed it to have a deficit of £0.4 billion, compared to a surplus of £1.8 billion at the time of the last valuation of the BRPS in 1993 prior to privatization. Concern about rising costs led rail unions and employers to establish an independent Railway Pensions Commission. Its first report, published in 2007, concluded that DB pension provision across major parts of the railway industry was sustainable over the long term if it was made more affordable. Its final report, published in 2008, made recommendations for change.

In April 2019, Stagecoach said it had been disqualified from three rail franchise competitions for submitting bids that were non-compliant, principally in respect of pension risk. It was concerned that it would otherwise be required to make significant financial contributions to repair the deficit in the scheme.

In response, the Government said that from the time the RPS was established, train operating companies (TOCs) had been responsible for paying employer pension contributions during a franchise term. In the vast majority of franchises, they had been on full risk for changes to those contributions during their franchise term. The new East Midlands franchise included a risk sharing mechanism with the government, which reduced the risk the TOC was exposed to, so that they would only have to pay any increase in contributions relating to pension rights arising from future service (rather than deficit reduction contributions) (PQ 244026, 24 April 2019).

Stagecoach and other TOCs launched a legal challenge against their respective disqualifications from three rail franchise competitions between 2017 and 2019. However, in a judgement published on 20 June 2020, the High Court held that the Secretary of State’s decisions had been lawful. The Rail Delivery Group said the industry accepted the judgement and wanted to work with the “the Pensions Regulator, DfT and the unions with a view to agreeing a sustainable pensions framework for the train operator sections of the Railway Pensions Scheme.”

More recently, concern has been expressed about the impact of changes to the regulation of scheme funding that may result from provisions in the Pension Schemes Bill 2019/21 and a TPR consultation.