At least two of the country’s biggest transport unions have threatened industrial action after an independent review of the Transport for London Pension Scheme set out a suite of possible pension reforms that would cut benefits.
Sir Brendan Barber’s independent review of TfL’s pension arrangements began after the transport authority and central government agreed a bailout in June 2021.
The accord was for six months, with the government demanding a pensions review as a condition of the agreement.
TfL’s finances were ravaged by the coronavirus pandemic, which slashed passenger numbers and caused a 90 per cent drop in TfL’s revenues at the height of the crisis.
It is seen as just about the only benefit of employment above and beyond employees’ salaries and travel concessions
Sir Brendan Barber, independent review lead
At the start of March, commuters endured two days of travel disruption as staff walked out over attempts to find cost savings in the scheme.
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.
Barber’s final report, published on March 28, did not go as far as making a concrete recommendation for the future make-up of TfL pensions.
“A high-quality scheme is a much-prized condition of employment, highly valued in particular – as in TfL’s case – if it is seen as just about the only benefit of employment above and beyond employees’ salaries and travel concessions,” he acknowledged.
The report modelled several avenues for the scheme, which included maintaining its existing arrangements.
The Transport and Salaried Staffs' Association union said the ‘no change’ option vindicated the workforce and exposed the government’s “politically motivated” review.
Benefits could be reduced
The report acknowledged that changes to the scheme would impact benefits and pay elsewhere, and affect TfL’s ability to recruit and retain staff.
It confirmed four options that had previously been laid out in an interim report that was published at the close of last year.
These avenues consisted of keeping the scheme’s current arrangements, providing a modified final salary scheme, switching to a defined benefit scheme based on career average revalued earnings, or a CARE scheme with tiered contributions.
It ruled out introducing a defined contribution scheme, a DC auto-enrolment scheme, a collective defined contribution scheme and a cash balance scheme.
The report’s modelling for altered final salary options produces annual savings in the range of £79.3mn to £182.4mn.
The modelling for CARE schemes, including those with tiered contributions, would wield cost reductions of up to £154.4mn a year to a cost increase of £23.1mn a year.
“Almost all of the benefit combination scenarios see reductions in the future service benefits available to members, and increased contributions compared to the current position,” the report said.
It added that these benefit reductions or contribution increases would not be evenly felt by members.
Members’ built-up benefits were ringfenced as part of the terms of the review. The report said this could be achieved by basing pension calculations at retirement on a ‘leaving service basis’, as defined under a section of the Pensions Act 1995 that protects past benefits by restricting a scheme’s power of amendment.
Another option would be to calculate these based on the member’s final salary, as is normally done in the public sector. It could also be conducted using the higher of the two options, it suggested.
“Given the scheme’s revaluation rules and salary restraint, it is not clear-cut which would give the best outcome for TfL scheme members,” the report said.
This will depend on members’ individual circumstances, how close they are to retirement, and TfL’s future pay policy, it added.
Scheme in surplus
The report described the scheme as “well-run and highly valued” and noted that its pending 2021 actuarial valuation will yield “a modest surplus”.
Union leaders seized on the upbeat assessment of the scheme’s funding level and operational health, threatening strike action in response to any attempt to water down members’ benefits.
Manuel Cortes, TSSA general secretary, said: “Today’s independent review has shown what we knew all along — that TfL’s pension fund is viable and there is no need to slash workers’ pensions. This is a vindication for TfL workers.
“We’re absolutely clear — any move to get rid of TfL’s pension scheme, any ask for workers’ to pay more for less, is a red line and we will ballot for strike action.”
Finn Brennan, Associated Society of Locomotive Engineers and Firemen's London Underground organiser, echoed TSSA’s threat of industrial action.
Commuters face travel chaos as TfL workers strike over pension cuts
Commuters on the London Underground faced two days of travel chaos as Transport for London staff held a strike over planned pension cuts.
“The report makes clear that if changes were to be made to the scheme they could have a huge impact on the income staff receive in retirement that would be neither fair nor sustainable,” he said.
“No specific changes are recommended and primary legislation would almost certainly be needed if TfL seek to make changes without the agreement of members.
“If TfL or the government try to force through detrimental changes the result will be sustained and hard-hitting industrial action.”
