Transport for London has said pensions may need to be part of funding negotiations with the Department for Transport, raising the possibility of changes to the open final salary scheme. The RMT union has warned it will “use every weapon” at its disposal to fight potential cuts.

TfL and its finances were the subject of a bitter row between London mayor Sadiq Khan and prime minister and former London mayor Boris Johnson last year, in which Khan accused Johnson of lying to parliament. 

The argument was about the TfL’s deficit, in the context of the mayor requesting extra funding from central government for TfL due to a pandemic-driven drop in passenger numbers. Last November, the government and the mayor finally struck a funding deal at the eleventh hour to keep TfL running until the end of the year, but negotiations are continuing this year.

Last week, TfL published a financial sustainability plan, which looks at where TfL could potentially tighten the belt, including in pensions. The transport operator currently contributes around £370m a year to the £10.6bn open final salary scheme, or 33.3% of pensionable pay. Around £75m of this is in deficit repair contributions based on the 2018 valuation deficit of £603m. 

The scheme’s funding deficit has since deteriorated because of the continued impact of the coronavirus pandemic on the measurement of the scheme’s assets and liabilities, the report states.

“In addition, the Pensions Regulator is advocating increased level of prudence in DB schemes. Both of these issues mean that the deficit reduction contributions future service costs payable by TfL may increase further following the actuarial valuation as at 31 March 2021,” TfL warns.

Therefore, “the ongoing funding discussions between TfL and [the Department for Transport] may need to include an assessment of the potential impact of the costs and risks associated with the TfL Pension Scheme and an exploration of how they could be addressed in future”, it adds, suggesting it is not ruling out pension benefit changes for the roughly 26,000 active members.

The report cites an Independent Review from last month, which suggested that a commission should be created “to provide options to modernise the Scheme”. 

TfL says it will “carefully consider the recommendations in this regard” but that any potential reviews or changes to elements of the pay and benefits package should be “considered holistically”, to allow TfL to still attract and retain talent.

“Any change which makes the package less competitive could result in a significant inability to attract and retain key personnel, and therefore the ability to deliver both the Mayor’s Transport Strategy and other key organisational objectives,” it says.

A TfL spokesperson said: “The Independent Panel Review into TfL’s finances which was published in December 2020, suggested that a Commission should be established to provide options to modernise the TfL Pension Scheme. As said at the time, TfL will carefully consider the Panel’s recommendations.”

Transport for London, like all transport employers, is heavily unionised. This is reflected in the pension fund among others; the scheme’s trustees include representatives from the Associated Society of Locomotive Engineers and Firemen, Unite, the Transport Salaried Staffs' Association and the National Union of Rail, Maritime and Transport Workers. 

RMT general secretary Mick Cash said the financial sustainability plan was “a massive missed opportunity and a capitulation to Tory austerity”, arguing that TfL should have made the case for public funding.

 

“Most scandalously, the plan calls for a Commission to examine options for attacking our members’ pension scheme, chasing a Tory obsession,” he said. “RMT will not stand for any attack on our members’ jobs, pay or pensions, wherever it comes from. We’ll use every weapon at our disposal to fight any cuts,” Cash added.

 

The most powerful weapon – industrial action – could however have been blunted by the pandemic, as passenger numbers have dropped off a cliff. Cynics might say that this moment was chosen deliberately to implement changes long on the government’s wish list, but which would lead to disputes with unions – such as closing a final salary scheme.

 

The DfT did not comment on this suggestion, but a spokesperson said: “The Government is committed to supporting London’s transport network throughout the pandemic and we have repeatedly shown this with more than £3bn in emergency funding since May 2020. We will be considering TfL’s Financial Sustainability Plan carefully and will continue to work with the Mayor to get TfL on a more stable financial footing in a way that is fair to UK taxpayers.”

Andy Byford, London’s Transport Commissioner, said: “Throughout the 20-year life of Transport for London, all Mayors and Commissioners have made a powerful case for investment in public transport to support the economic, social and environmental health of the city and country. However, the last year has shown that TfL’s current reliance on fares revenue as a primary source of income is just not sustainable and needs to be fundamentally changed to drive a robust recovery and thriving future.”

 

He added: “This Financial Sustainability Plan shows just what can be achieved with the right level of funding and provides the starting point for discussions with Government on putting TfL on a sustainable financial footing. It also clearly demonstrates how an equitable and longer-term funding settlement will support the Government’s levelling up and decarbonisation agendas and, through our range of shovel-ready projects, boost the UK economy and aid the recovery from the pandemic.”