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Stagecoach Stands By Refusal To Accept High Pension Risk In Rail Bids.

LONDON (Alliance News) - Stagecoach Group PLC on Thursday said despite disqualification it believes it is correct in refusing to accept potential pension risks in its rail franchise bids.

The public transport company, which runs the East Midlands Trains network and holds a 49% stake in Virgin Rail Group, was shortlisted in three franchise competitions.

These franchises were East midlands, where it was bidding independently, South Eastern, where it bid with support from partner Alstom, and West Coat Partnership, where it was part of a joint bid with Virgin Group Ltd and French national railway company SNCF.

Although it had been shortlisted, Stagecoach was ultimately excluded from all three franchise bids as it had "refused to accept the potential pension risks" required by the UK Department for Transport.

Stagecoach said the full extent of the pension risks was not known, but estimated the risk to be "well in excess of GBP1 billion for the three franchises".

Historically, a franchised train operator's obligation to the railways pension scheme has been limited to the period of the franchise and the operator has not been held responsible for any deficit in the pension scheme.

The trustee board of the railways pension scheme has been operating under the assumption that the Department for Transport stands behind any pension liability once each franchise ends.

However, the UK Pensions Regulator has become concerned the railways pension scheme may not actually benefit from the Department for Transport's support and considers there to be an up to GBP7.5 billion deficit across franchised train operators.

For this reason, Stagecoach said it understands the Pensions Regulator is "seeking significant additional contributions to the scheme which are as yet unquantified".

Given this, and in the absence of contractual protection, Stagecoach believes the operator of any new rail franchises may be exposed to "substantial" further pension contributions.

While the Department for Transport did provide some limited protection for franchise competitors, this was limited only to the 2019 scheme, deficit contributions, and employer contributions.

This meant the protection did not cover the risk of contribution increases from future valuations, employee service costs, or the risk of protest from employees.

Given these additional risks, Stagecoach sought further contractual protection beyond what had been provided - limiting the train operating company's exposure to pension contribution increases "to a manageable level" - and included pension costs increases in its bid forecasts.

"Notwithstanding the disqualifications, we continue to believe we were right not to accept the pensions position sought by the Department for Transport and that to have done so would have been to take on unknowable risk and been contrary to the success of the company and also contrary to the interests of employees, customers and the franchise," said Stagecoach.

"Our West Coast Partnership bidding partners, Virgin and SNCF and Alstom, our proposed partner for South Eastern, supported those bidding positions. We also note media reports that at least one other bidder took a similar position and was disqualified from the East Midlands competition," Stagecoach added.

Shares in Stagecoach were up 1.3% at 135.20 pence on Thursday morning.

By Anna Farley;

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Publication:Alliance Newswire
Date:May 2, 2019
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