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Railways: Pension Provisions

Volume 548: debated on Tuesday 27 July 1993

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To ask Her Majesty's Government:Whether the Memorandum of Understanding between the Department of Transport, the British Rail Pension Trustee Company and the British Railways Board, on British Rail pensions after privatisation ("the Memorandum of Understanding") is contractually binding; if not, whether they will put it into a form which is contractually binding; and whether they will incorporate it into the Railways Bill.

The parties to the Memorandum of Understanding are fully committed to it. We are considering whether further amendments are required to the pensions provisions of the Railways Bill.

asked Her Majesty's Government:In what circumstances they envisage that there might be "future deficiencies" in the closed fund provided for by the Memorandum of Understanding.

Such deficiencies would arise if the joint actuaries to the scheme advised that, in their opinion, the assets of the scheme would be unable to meet its future liabilities. There could be a variety of reasons why a deficiency might arise, including poorer investment returns than anticipated when benefits had been set.

asked Her Majesty's Government:Why, under the Memorandum of Understanding, British Rail pensioners should benefit from only 40 per cent. of the closed fund, when at present (subject to the agreement of the Employer) they can benefit from 100 per cent.

Under the rules of the British Rail pension scheme, in normal circumstances employees pay 40 per cent. of the total contributions to the scheme, the employer paying the remaining 60 per cent. This division has been the basis for previous allocations of surplus.

asked Her Majesty's Government:What protection the Memorandum of Understanding gives to existing, deferred and future pensioners in the present British Rail pension scheme, particularly in respect of Retail Prices Index-plus benefits.

The arrangements are set out in the Memorandum of Understanding itself. The principal protection is that the Government will provide an absolute solvency guarantee for retail prices index-linked payments from the fund (in line with provisions of the Pensions (Increase) Act 1971 and the Social Security Act 1975) of pensions already in payment and those which have been deferred as at the target date of 1st October 1994. In addition the Memorandum of Understanding provides protection for those who leave British Rail employment after the closed fund is set up.

asked Her Majesty's Government:Whether the Memorandum of Understanding has been presented to the Occupational Pensions Board for consideration.

We have made the Occupational Pensions Board aware of the proposals. We shall consult them during the drafting of subsequent documents.

Whether the Government Director provided for by the Memorandum of Understanding will be a trustee acting in the interests of beneficiaries.

We are taking advice on this point. But pension scheme trustees are in any event required to act in the interests of all persons with an interest in the scheme, including the guarantor.

asked Her Majesty's Government:Why, under the Memorandum of Understanding the government director should "decide on the investment of the special reserve" rather than any surpluses going back into the general fund, and why he or she should have a veto over the distribution of any surplus.

The purpose of these provisions is to protect the interests of the taxpayer now that we have agreed to provide a solvency guarantee for the closed fund. The special reserve is to be held as a buffer against any future deficiencies; since we would meet any such deficiencies, it is appropriate for the government director to decide how the reserve should be invested.

asked Her Majesty's Government:Why, under the Memorandum of Understanding, the Secretary of State has the power to veto any change in contribution rates and any benefit increases over increases in the Retail Prices Index.

This provision is to protect the interests of the taxpayer. Without it, the Government's commitment to safeguarding the relevant pension entitlements would not be protected from the financial consequences of unreasonable reductions in contributions or increases in benefits.

asked Her Majesty's Government:Whether the Trustee Board has considered the arrangements contained in the Memorandum of Understanding and, if so, whether a copy of its resolution will be placed in the Library.

This is a matter for the board of directors of the British Rail Pension Trustee Company Limited.

asked Her Majesty's Government:Whether the beneficiaries of the existing British Rail pension scheme have been consulted about the arrangements contained in the Memorandum of Understanding.

This is a matter for the trustees of the British Rail Pension Scheme.