As the debate over the UK’s pensions crisis reached a crescendo with last
month’s publication of the long-awaited Turner Report, Frank Johnson had other
things on his mind.
As the finance director of Railpen Investments, the investment arm of the
Railways Pension Scheme, it’s his organisation’s job to advise on the
trusteeship of one of the largest and most complicated pension schemes in the
country. The scheme has assets of around £16bn and a membership exceeding
350,000. In pensions terms, it’s a force to be reckoned with.
The RPS was created to coincide with privatisation in 1994. ‘When the railway
industry was fragmented under privatisation, the government wanted to keep a
central trustee for members of the railway companies so people could move around
without it affecting their pensions,’ Johnson explains.
As the sixth largest scheme in the UK, any decisions the company makes –
particularly ones regarding radical changes in investment strategy – tend to hit
the headlines. And with fund managers all vying for a slice of the Railpen pie,
you can imagine that Johnson and his fellow directors will be on quite a few
Christmas card lists this year.
‘When we took the decision to invest in hedge funds, it made the Financial
Times and Radio 4. For a long time we’ve been seen as a trendsetter. But the
safekeeping of our £16bn assets is paramount,’ he says. ‘Increasingly we’re
looking at growing our global exposure, and increasing our overseas investments
from 55% to 70% of our equity fund over the next two to three years.’
‘We’re transferring large amounts of money between fund managers. Tax is a
big issue and making sure we get all the dividends and tax relief we’re entitled
to, is a significant part of the job,’ he adds.
In actual fact, the railways pension scheme is not one but 103 schemes – one
for each ‘section’ – the largest of which is Network Rail, boasting 35,000
members and representing 10% of total membership and 27% of active RPS
The numbers may be big, but Railpen is not immune to the pension deficit woes
that have been plaguing UK businesses for the last few years. The latest
three-yearly evaluation of its scheme, to 31 December 2004, shows that funding
levels are in the 90% to 95% range. Johnson seems unfazed by the potential
£1.6bn shortfall. ‘It’s not catastrophic, but returns didn’t meet our actuaries’
estimates and we’re all living longer.’
New life expectancy figures published by the Government Actuary’s Department
in October highlight why the public sector, in particular, is keen to make many
of its employees work longer before retiring. Boys born this year will on
average live to 86 – three years more than the government estimated just last
year. And the average girl born this year will also live three years longer, to
‘We’ve got to increase contribution levels,’ Johnson says. ‘A lot of schemes
are a balance of costs; employees pay a certain amount and the company pays the
rest. With us, it’s a shared cost scheme. Employers meet 60% of the cost and
staff meet 40%. So we’re now facing up to higher contribution levels.’
Last month’s Turner report (see box) may have triggered a political row over
who or what may have caused the pensions crisis and whether the reforms the
pensions commission have put forward are affordable, but Johnson stands behind
the proposals. ‘I think it’s inevitable that the retirement age needs to go up.
Do people think they can retire at 55 and keep living for another 35 years on a
Railpen itself is in what Johnson describes as a period of ‘intense
consultation’ with employers and pension committees. ‘Our concern isn’t that
there will be a backlash – it’s that employees will find it too expensive, and
because it’s a shared cost scheme, the amount they could be expected to
contribute could vary quite a lot. New members could decide that it’s too
expensive to join.’
Johnson admits that, given the escalation of public debate on pensions, a key
challenge facing Railpen is how to communicate the key messages to employees,
particularly as they operate across such a diverse range of activities. ‘You
need an asset strategy that’s appropriate to each sector,’ he says.
In addition to his job at Railpen Investment, Johnson is also finance
director of Railpen Pensions Management, the administration business whose job
it is to liaise with employers and pensions committees. Overseeing both
businesses is not without its challenges, not least because one is based in
London and the other in Darlington, where he works three days a week. To
complicate matters further, the family home is 10 minutes from Gleneagles in
Johnson’s hectic travel schedule isn’t taking its toll just yet. ‘I’ve been
doing it since July last year. People are adaptable,’ he muses. ‘I’d lived in
London for 20 years before we moved to Scotland with our two children. They’re
settled in a good local school.’
But there is a flipside to the disproportionate amount of time he spends on
the train or in his car. ‘I’m much more disciplined about not letting work
intrude at weekends. I’m much more in control of my destiny than when I worked
in the profession.’
Johnson is referring back to the long hours’ culture that prevailed during
his time training at Price Waterhouse, the firm he joined in 1979 after
completing a degree in commerce at Birmingham University. He certainly doesn’t
miss burning the candle at both ends, but admits that the big firm experience
proved invaluable for his subsequent career.
‘It instils a real commitment to client service. Admittedly, memories dim
with time, but my recollection is one of a work hard, play hard culture. There
was a strong student culture, united by the fact that we were trying to pass our
Johnson left the firm in 1991 having worked up the hierarchy to senior
‘I recognised that I wasn’t going to make partner,’ he says. ‘It would have
been nice to have the choice, but I also realised there were other jobs that
offered real variety.’
His first job in business – as group chief accountant for the British
Railways Board at the start of Thatcher’s privatisation process – certainly
ticked that box. ‘They wanted an external recruit to bring some external
experience to bear as they entered a period of major organisational change.’
Restructuring BR into between 80 and 100 segments for privatisation was a
major task — from preparing Railtrack for flotation to awarding the first rail
franchises. ‘It was a bit of a supertanker – you couldn’t join and think you
were going to change direction quickly.’
The job presented some rather unique challenges. ‘Getting the right mix of
long-term BR people — who understood the nuances of dealing with government and
knew what lay beneath the surface of the British Railways Board — and external
recruits was crucial. Technically, it was one of the most challenging times of
Johnson says that only occasionally when filling internal posts did he come
across some ‘real trainspotting tendencies’. But ultimately it was the absence
of a real commercial element to the job that led Johnson to seek his next
challenge – as finance director of South Central trains.
Just weeks after joining, Connex won the South Central franchise and Johnson,
who fortunately was tipped off by a sympathetic colleague just two days earlier,
read a recruitment advert for his own job in the FT.
‘Before they’d even met me, Connex decided they would test the marketplace,
and I had to reapply for my job.’ Amid a shortlist of four candidates, whittled
down from almost 300 applicants, Johnson got the job.
Since then, his career has remained firmly rooted in the transport sector –
from South West Trains via a stint on the buses at Stagecoach and its ‘flat cap
image’ and even an interim position with the British Transport Police, working a
three day week as they looked for a replacement FD. ‘My golf handicap improved
during that time,’ he says.
Johnson admits the move to Railpen in July 2004 was a very steep learning
curve, forcing him to spend a year at evening classes on investment management
at London Business School.
‘I had the advantage of knowing a lot of the key stakeholders, but I’d only
dabbled in pensions. The fundamentals of good accountancy travel across. It’s as
much about management, leadership and communications as it is about the
The 47-year old is tight-lipped on his own personal plans for retirement.
‘I’m in a pension scheme that has a normal retirement age of 60,’ he says.
‘Let’s just say that I expect my children to work longer than I do.’
Turner comesas no suprise
The Turner report from the Pensions Commission, published on 30
November,mooted a gradual rise in the state pension ageto 68 as part of a major
proposed shake-up ofUK pensions. In return, the basic state pension would be
increased and rise in line with earnings rather than inflation.
As the finance director of one of the biggest pension schemes in the UK,
Frank Johnson was distinctly underwhelmed by the report, which he says offered
little in the way of surprises.
‘When you look at pensions, there are onlyfour key variables,’ he says.
‘People can either work longer, save more, pay higher taxes or have smaller
‘The Turner report quite rightly addresses the fact that people will have to
work longer and save more. Increasing the retirement age is inevitable.’ The
Pensions Commission also proposed a National Pension Savings Scheme, into which
many workers would be automatically enrolled.
Johnson agrees with the concept and wholeheartedly supports auto-enrolment
but peppers his enthusiasm with a warning that people must be given the option
to opt out.
‘The idea is to attract those people whodon’t save or don’t save enough into
saving,’ Johnson warns. But it shouldn’t be used asan excuse by companies to
reduce theirpensions commitment.’