It might not be our problem in the future: Southern rail's owner cuts pension costs to reflect "limited responsibility"

Oliver Gill
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Go-Ahead owns a majority share of the joint venture parent of Southern rail

It's been a nightmare year for Southern rail. But its owner was given a boost today after revealing its profits will leap by 38 per cent, simply by changing the way it accounts for its railway pension costs.

Go-Ahead shares were one of the top movers in the FTSE 250 this morning, up over three per cent, following the news.

The gigantic Railways Pension Scheme is the legacy structure from the days of British Rail. Post-privatisation, rail companies are – in the main – liable for the amount of the scheme relating to their employees.

Read more: John Lewis warns of lower profits for 2015

FTSE 250: Five most costly pension schemes

Company Sector Annual pension service cost
FirstGroup Transport £84m
Morrisons Supermarket £80m
Go-ahead Transport £63m
Stagecoach Transport £61m
AMEC Engineer £32m

Source: JLT Employee Benefits – August 2016

Go-Ahead, like many other UK rail operators, has historically shouldered the full rail pension service cost each year – even though some of these costs may be making good scheme payments that fall decades into the future.

Rail companies are only awarded franchises or operating contracts for a limited number of years, so some of these costs could relate to years when it is no longer running the railways.

"To better reflect the group's limited responsibility for rail pensions... operating profit will now only recognise the group's agreed cost for rail pensions, rather than the full service charge previously included," Go-Ahead said in a statement.

Read more: Pension deficit rise relaxes in September

In numbers terms, the operating profit of £120.4m for the year to June will be restated to £165.6m. Earnings will jump from £175.6m to £220.8m.

29 November 2016 @ 10:00amGo Ahead Group (GOG)

Shares in both First Group and Stagecoach also bounced in trading this morning

Unfortunately for Go-Ahead, pension costs relating to bus contracts cannot be adjusted in the same way.

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