Spectrum of Design Options

5.1. As set out in Section 3, the significant adverse impacts that future service benefit reform may have on the funding position of the Scheme would, in practice, preclude any future service benefit reform being pursued unless the Government support for the management of past service liabilities was provided at the same time. For the purposes of this paper, TfL has made the assumption that such support would be forthcoming. If, in reality, this support is not forthcoming, then it will not be possible for TfL to consider reform of future service benefits any further. 5.2. The arguments set out in this, and the 27 September paper, in relation to the unnecessary cost and risk caused by the Scheme’s private sector status, apply equally to the consideration of the accrual of future service benefits and, as a consequence, to any past service that builds up in the future. Therefore, it is TfL’s view that better value for money can be achieved if both future service benefit accrual and the management of past service benefits are provided via a public sector arrangement. The options discussed in this paper hence all assume that future service benefit will be provided in a public sector arrangement. 5.3. As set out in Section 2, it is also the case that the Government’s target level of cost savings of around £100m per annum is based on information that is out of date and not properly defined. The target should include the costs of past service (not just future service), against which the majority of the savings identified by the TfL Independent

Panel Review have now already been realised through the improved funding position of the Scheme at the 2021 valuation. Additionally, the value of £100m itself should now be lower, reflecting changes which have already been taken into account in the way indexation will apply going forwards and therefore the reduction in scope for savings to be generated in a way that is considered fair. 5.4. It would simply not be fair to members to pursue changes on the basis of a savings target that is based on information that is now out of date and not properly defined. This is particularly the case when, in order to aim to meet the Government’s £100m cost saving target, the options would need to be far less generous than comparable public sector schemes. For this, and other reasons set out in the remainder of this paper, the focus should not be on short term cost savings, but instead looking at approaches which would limit the risk of large future cost increases in a way that is consistent with pensions available elsewhere in the public sector, while minimising any impact on members’ benefits which change may bring.

Spectrum of Design Options

5.5. Generally speaking, there is a spectrum of potential design options for the provision of future service benefit which TfL could consider. This spectrum is illustrated in Figure 1 below. As noted in the 27 September paper, there are generally two broad categories of

DB options, in particular, that TfL may consider further for the purposes of its substantive future service pensions provision, compared to the current pension arrangements.

Consistent with the Review, these are: (i) some form of Final Salary arrangement; or (ii) a

CARE arrangement.