Transport for London (TfL) has suggested that meeting the government's £100m cost saving target would result in an "unacceptable" detriment to member pension benefits, arguing that "government support is necessary" to support the scheme.

TfL’s Pensions Options Paper found that aiming to achieve the government’s £100m cost saving target would create a "disproportionate" focus on affordability at the expense of fairness and the impact on members.

In addition to this, the paper said that aiming for a £100m cost saving target would lead to an “unacceptable” level of detriment to members’ benefits, with “significantly less generous” options available compared to other public sector schemes, which TfL stated was “neither reasonable nor fair”.

It also argued that the £100m target set by the government is based on out-of-date information, noting for instance, that this does not take into account the cost of managing past service, but focuses on future service alone.

Instead, TfL suggested that any consideration of reform should examine how the potential risk of large cost increases in the future can be mitigated, while also aiming to minimise any resulting impacts on members’ benefits, to ensure that the pension arrangements are sustainable and fair for members and stakeholders.

Changes may be needed though, as TfL’s paper acknowledged that, based on the basis of the current arrangements, there is a risk that future significant past service deficits could arise, resulting in unaffordable levels of contributions for TfL.

TfL said that reform of future service benefits would lead to similar significant risk issues, estimating that a closure of the scheme to future accrual could crystalise a deficit of around £6bn, requiring a level of contributions from TfL that would preclude any potential future service reform unless past service liabilities were addressed at the same time.

"It is clear, therefore, that the management of past service liabilities poses the principal threat to the sustainability of TfL’s pension arrangements going forwards,” it stated. “TfL cannot manage these risks alone - government support is necessary."

The paper outlined two potential options for this support, including government support for legislation to enable a transfer of past service assets and liabilities to a new or existing funded or unfunded public sector arrangement in order to reclassify the scheme as a public sector scheme.

The paper estimated that on a public sector basis, the funding position would improve "significantly" to a surplus of around £2bn, reflecting a "more appropriate funding basis" for a public sector employer like TfL.

It noted that this option would also enable the risk to TfL of past service deficits arising in the future to be removed entirely and would provide the government with around £12bn of assets that would no longer need to be matched to liabilities.

The potential for a Crown Guarantee provided by the government was also highlighted, as TfL explained that this would “significantly” reduce the cost of contributions and any further affordability pressures generated by the scheme, by allowing trustees to effectively rely on the government itself when assessing the covenant available to the scheme.

TfL estimated that a Crown Guarantee would therefore result in a valuation surplus of around £2bn and reduce the risk of The Pensions Regulator requiring the trustee to use more prudent assumptions to fund the scheme.

However, these options would only address past service liabilities, with the government requiring TfL to consider options for the reform of future service benefits.

TfL's paper has therefore outlined options for either a final salary design or a Care design for future service reform, with two sub-options outlined for each of these DB types.

However, TfL reiterated that these options are “not proposals for reform”, also including a ‘do nothing’ option in the paper based on the current arrangements.

In addition to this, TfL confirmed that government sponsored legislation would be required to deliver any future service reform, as well as “considerable, widespread engagement with stakeholders”, acknowleding that the current pension arrangements are “highly valued by employees”.

TfL said that it will now work collaboratively with the government on further work in this area, with an implementation plan to be shared by January 31 2023.

In the meantime however, TfL stated that it will be "vital" for the government to address whether it will provide support for past service issues, confirming that, without such support, TfL will "be precluded from further consideration of future service benefit reform".

RMT Union has already come out against the options included in the paper, branding them as a potential "£100m pension cut" that would leave members 30 per cent worse off in retirement.

RMT general secretary Mick Lynch said: "TfL’s latest pensions paper clearly shows the depths to which this government is prepared to stoop, demanding that our members take 30 per cent cuts in their pensions in retirement in pursuit of a cut that TfL know is completely unnecessary.

"It’s shameful that TfL continues to participate in this morally bankrupt process. Our members’ pensions have become bargaining chips in a one-sided negotiation with a spite-filled government and with no one else prepared to stand up and fight for working people, RMT members have to do it themselves.

"This union will never accept such attacks on our membership and will continue its industrial campaign until we get a just deal."

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