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14 May 2019

Omnium Employee Benefits - Stagecoach exclusion unmasks serious pension problems

Mark Hodson from Omnium Employee Benefits writes about significant implications with the decision to exclude Stagecoach from the rail franchise process

‘The announcement on 10th April 2019 by the UK Department for Transport (DfT) that Stagecoach had been excluded from three rail franchise bids came as a shock to many, not least Stagecoach themselves.

The British Railways Pension Scheme was backed by the government when the railways were nationalised but, after privatisation between 1994 and 1997, the covenant passed to the Train Operating Companies.

This was probably something which attracted little attention at the time but has been brought into sharp focus as a result of the DfT announcement.

It now emerges that the Railways Pension Scheme has a shortfall stated to be in the region of £7.5bn and Train Operating Companies will be obliged to share part of this liability as part of their bidding commitments.

The problem with all final salary pensions is that the true costs to any employer over a period of time are unknown. Hence, from a commercial aspect, any bidder is effectively committing to an open-ended contract. Given the sums of money involved, this is not an attractive proposition.

Add to that the fact that most of the bidders for rail franchises in the UK are consortia and comprise companies from various different countries, it becomes unclear who, ultimately, carries the risk.

So far, the UK government has declined to underwrite any part of the process as this would fall to the British taxpayers. However, by awarding the East Midlands franchise to Abellio, this effectively transfers a possible responsibility to the Dutch taxpayers.

As this point, I am going to mention Brexit, as this will surely complicate matters further regarding any covenant obligations.’

Mark Hodson

 

More about Mark Hodson Dip PMI Dip PFS

Following a long career with Scottish Widows, latterly as Director of Employee Benefits, Mark joined The Bourne Group in 2009 as Senior Adviser at Omnium Employee Benefits and was promoted to Associate Director in 2012.

Mark’s primary role is to develop the expanding corporate client bank of the Group and deliver a full range of specialist employee benefits advice. He is authorised to advise on the full range of corporate products including all types of pension schemes, group healthcare, group life assurance and long-term sickness absence insurance.

He has been able to assist several organisations offer a wide range of employee benefits at a reasonable cost and thus aid in both the recruitment and retention of high-quality employees.

Mark has been involved in speaking at the Money Marketing automatic enrolment seminars as well as many other benefits-related events in recent years. He continues to offer expert opinion in various professional publications and is currently involved with the Pensions Management Institute in running CPD-accredited training in the south-east.

Currently, he is involved in two key issues:

Working with a mental health foundation on analysing the links between mental health and financial health in the workplace and Working with a firm of immigration lawyers on the effects of Brexit for employers with EU employees


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Omnium Employee Benefits is a consultancy offering guidance and advice to SMEs on all aspects of their employee benefits packages. We are privately owned and provide unbiased, unrestricted and wholly independent financial advice