rose to move, That the Grand Committee do report to the House that it has considered the Railway Pensions (Transfer of Pension Schemes) Order 2007.
The noble Lord said: This order transfers some of the members, assets and liabilities of six historic British Rail pension funds to the 1994 Pensioners Section of the Railways Pension Scheme. Where members of these historic funds are also members of the British Rail 1974 Pension Fund, their membership and the liability of the 1974 fund to make payments to them will also be transferred. Where discretionary benefits are given to members of the British Rail historic funds, these benefits will be continued. Once the transfer has been completed, these historic funds will be wound up.
The British Rail historic funds are: the London and North Western Railway Provident Society for providing pensions for the widows and orphans of members of the salaried staff; the Great Western Railway Supplemental Pensions Reserve Fund; the Great Western Railway Salaried Staff, Widows and Orphans Pension Society; the Great Northern Railway Superannuation Fund; the Great Western Railway Inspectors and Foremen’s Special Pension Fund; and the Southern Railway (South Eastern and Chatham Section) Enginemen and Motormen’s Pension Fund Society.
The main purpose of the proposed transfer is to achieve more efficient administration of the pension arrangements for railway pensioners and a saving in administrative costs for the taxpayer. This ensures that the running costs of the scheme are proportionate and do not erode the benefits. The Secretary of State is the designated employer of the 1994 Pensioners Section. He is also the designated employer of all but one of the historic funds. The exception is the South Eastern and Chatham fund. Stagecoach South Western Trains Limited inherited responsibility for this scheme at privatisation because it employed the last active member of the scheme.
The 1994 Pensioners Section is mainly comprised of all the pensioners plus the deferred pensioners at the time of privatisation. The section benefits from a Crown guarantee. When the 1994 Pensioners Section was set up, a special reserve fund was established within it. If a surplus arises under the 1994 Pensioners Section, 40 per cent of it is distributed to the scheme members and 60 per cent is directed to the reserve fund. The reserve fund is used to make up any future shortfall in pension liabilities under the 1994 Pensioners Section. The special reserve fund is currently sufficient to meet any deficit in the 1994 Pensioners Section even after the transfer of liabilities effected by the transfer order. If in the future the reserve fund were to be insufficient to meet the liabilities of the 1994 Pensioners Section, the Secretary of State would have to meet any shortfall under the guarantee issued by him.
The transfer involves extending the guarantee already given to the 1994 Pensioners Section to cover the liabilities of the historic funds. It should not increase the exposure of the Secretary of State except in relation to the South East and Chatham fund, since the other historic funds already benefit from a Crown guarantee. The Secretary of State is expected to make a top-up payment of approximately £180,000 in relation to the Great Western Railway Salaried Staff, Widows and Orphans Pension Society, and Stagecoach South Western Trains Limited is making a payment of approximately £44,000 in respect of the South East and Chatham fund, so that those transfers comply with the Pensions (Protection and Designation of Schemes) Order 1994 and are transferred on a fully funded basis.
From the point of view of the 1994 Pensioners Section members, the transfer makes little difference. There are approximately 2,942 members in the historic funds as compared with some 155,592 members in the 1994 Pensioners Section. The historic funds assets being transferred are about £54 million compared with £4,591 million in the 1994 Pensioners Section. The liabilities transferred represent about 1 per cent of the current 1994 Pensioners Section liabilities. The transferring liabilities are therefore more than covered by the transferring assets.
For members of the BR historic funds, the proportionate cost of administering the 1994 Pensioners Section will be much lower. There is also an improved prospect of enhanced benefits, because the 1994 Pensioners Section is not restricted to a cautious investment strategy and its rules permit a distribution of 40 per cent of the surplus among members.
Two of the BR historic funds currently have a surplus of assets over liabilities. There is little likelihood of any benefit improvements to the members of these funds if they remain as separate funds, but the transfer will provide for those members to benefit from a one-off 4 per cent uplift in their benefits. Consultation took place with the trustees of each of the pension schemes concerned. Those trustees represent the interests of the members and are made up representatives of the pensioners, trade unions and employers. The transfers have the support of the trustees of all of the funds involved. I beg to move.
Moved, That the Grand Committee do report to the House that it has considered the Railway Pensions (Transfer of Pension Schemes) Order 2007. 19th report from the Statutory Instruments Committee.—(Lord Bassam of Brighton.)
I declare an interest as a member of the London and North Eastern Railway pension fund, although I never worked on it, and I am a beneficiary, I think, under the 1994 fund. What is being done is simply a bit of administrative tidying-up. There are lots of historic anomalies about the railway, and I am pleased to lend our support to the order.
I am grateful for the overwhelming support from the Benches opposite. The noble Lord, Lord Bradshaw, properly declared his interest. It is a little sad that the historic funds are being wound up. My understanding is that one of them goes back to 1851, as noble Lords can probably read in its long title. However, it makes good sense to transfer the funds. We do not think that any member of the historic funds or the 1994 Pensioners Section, including the noble Lord, Lord Bradshaw, will be at all disadvantaged. As I said earlier, there is a prospect of enhanced benefit for some members, who will now automatically benefit from a share of any future surplus in the 1994 Pensioners Section. I assure noble Lords that all members will be notified of these changes; in fact, they have already been put on notice. Some of them will no doubt be very happy, particularly when they realise that they will be 4 per cent better off.
On Question, Motion agreed to.