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Stagecoach and MPs demand answers in dispute over ‘staggering’ pensions fund deficit and rail franchise controversy

MPs have asked The Pensions Regulator (TPR) to reveal the extent of the “substantial” deficit in the Railways Pensions Scheme and provide an “urgent solution” after Stagecoach threatened legal action over its three spurned franchise bids.

Stagecoach’s lawyers have written to the DfT “seeking answers to numerous legitimate questions” regarding the decision to disqualify the group’s three franchise bids over pensions rules and replace it with Abellio on the East Midlands Trains Franchise.

The letter, sent over the weekend, preludes to legal action and demands a “prompt, full and transparent response to help restore public confidence in the integrity of the government’s procurement process, which has been badly shaken by this and other events.”

MPs on the Committee for Work and Pensions have also demanded answers in a letter to The Pensions Regulator, asking to know the extent of the deficit and TPR’s actions and future plans to work with firms and the DfT to address this shortfall.

The committee welcomed that the DfT “is taking seriously” the funding of workplace pensions obligations by train operators, and that Stagecoach being disqualified from three franchise competitions “will send a clear message to the industry.”

“Nevertheless, a substantial deficit in the Railways Pensions Scheme remains—and surely requires an urgent solution.”

The issue exploded last week after the DfT disqualified Stagecoach’s three rail franchise bids for breaching pensions rules which led to criticism from MPs and the threat of nation-wide industrial action from the RMT.

With TPR warning that train operators face a black hole of up to £7.5bn in just three years, Stagecoach said it was “extremely concerned” after it was told its exclusion was because of its refusal to shoulder extra risk for unquantified pension contributions.

The transport group said the government had chosen a “higher risk approach” to pensions, and it was “shocked” the DfT expected private operators to take the extra risk.

Virgin Trains, which had bid in partnership with Stagecoach to renew the West Coast rail franchise, echoed this stance with Sir Richard Branson stating “we can’t accept risk we can’t manage – this would be reckless” and warning the company could disappear from UK railways from November.

The DfT said the “non-compliant” franchise bids proposed “significant changes” to the commercial futures of the three franchises, and said Stagecoach was responsible for their own disqualification after it “repeatedly ignored established rules.”

Image credit - Jaroslaw Kilian