Sunday 29 March 2020 10:43 pm

State could be landed with £8bn rail pension deficit

Taxpayers could be on the hook for £8bn of railway pensions after the government effectively nationalised a portion of the rail system after coronavirus hit demand.

The Telegraph reported that the massive government intervention could shift the pension deficit of franchises from the private sector to the public sector.

Read more: Coronavirus: Government temporarily suspends rail franchise agreements

The Department for Transport (DfT) last week effectively took the rail network into public ownership in response to the coronavirus crash which has slammed demand for travel.

Transport secretary Grant Shapps gave companies the option of paying a set fee to run the franchises for six months or to return them to the government.

The report said the railway pension scheme’s deficit could hit £8bn following the recent stock market crash.

Rail pensions were a major source of controversy even before the recent crisis hit, with private sector companies reluctant to get landed with the liabilities connected to the scheme.

Virgin, Stagecoach and French national rail company SNCF were disqualified from franchise tenders recently after their bids were ruled “non-compliant” by the government.

The three companies have sued the government over the disqualifications which were based on the reluctance of the companies to potentially get saddled with massive liabilities from the rail pension scheme.

Read more: Crossrail construction suspended over coronavirus lockdown

The DfT’s emergency measures last week followed a 70 per cent drop in passenger numbers as coronavirus prevents travel across the UK.

The government said its actions will “allow operators to act in the national interest” in tackling the coronavirus outbreak in the UK.

“Allowing operators to enter insolvency would cause significantly more disruption to passengers and higher costs to the taxpayer,” the DfT said.

The emergency measures will initially be taken for six months to ensure that trains can continue to operate for key workers and essential travel.

DfT said in a statement that it is taking financial risk for the railways during the period of emergency measures.

“This includes the employers’ share of pension contributions for staff in the railways pension scheme,” the statement said.

“To be clear it does not constitute a crown guarantee for the railways pension scheme or the long-term assumption of pensions liability risk by government,” it continued.