An estimated 500,000 pensioners in Britain are being badly squeezed by loopholes that allow employers to sidestep responsibility for lifting pension payments to take account of inflation.
Hewlett-Packard, American Express, Chevron, 3M and the UK-listed Wood Group are among employers accused of taking advantage of the rules, according to a campaigner pushing for a rethink by regulators.
The injustice, says David Carson, who has taken his fight to parliament, is about to become irreversible for some as employers are poised to hand over all responsibility for legacy pensions schemes to life assurers via so-called buy-out deals.
At the heart of the dispute are the estimated 1,000 defined benefit schemes which have discretion as to whether they give inflation increases in respect of the employee’s service before 1997. Many choose not to, which is perfectly legal but leaves their pensioners progressively worse off every year as inflation erodes the real-terms value of their pensions. The leap in UK inflation of the past two years has exacerbated the problem.
Carson, 68, a member of the Hewlett-Packard Pension Association, says the company has only raised pension payments in respect of pre-1997 service by 5 per cent cumulatively since 2002. UK prices are up by as much as 65 per cent over the same period.
One former UK executive at Amex, Naomi Sutcliffe, told The Times some former colleagues had not received any inflation increase in respect of pre-1997 benefits since 2014, wiping 30 per cent from the real value of their pension incomes. “These are the people who contributed to making American Express the successful company it is today,” she said, estimating that “thousands” of Amex pensioners in the UK were affected.
The worst offenders, Carson said, often seemed to be American companies, which he believes are most likely to be advised by their accountants and consultants to do no more than the bare minimum.
Thousands of UK pensioners who previously worked for Amex, 3M and Chevron were among those urgently appealing for those employers to recognise the erosive effect of inflation and increase their pensions.
Wood Group also declined to pay any increases at all. Former employees of the UK arm of Foster Wheeler, which Wood acquired in 2017, have now received no inflation increase for
The Department for Work and Pensions and the Pensions Regulator had no idea about the scale of the issue because they do not compile the necessary data, Carson said. He is calling for urgent research into the 50 biggest DB schemes with discretion over pre-1997 service, which would help establish how widespread the problem is. Each of those schemes alone have more than 5,000 members. He then wants a code of conduct to try to shame employers into doing more.
The Pensions Act 1995 only forced employers to introduce inflation-proofing in respect of pensions clocked up for service after 1997.
A Wood Group spokesman said:
“Wood is in discussions with the trustee of the Wood Pension Plan regarding the long-term strategy for the plan. Various options are being considered, and it is likely that decisions will be made and communicated with the appropriate stakeholders in early 2024.”
Last month BP was accused of being “tone deaf” after limiting pension increases to members of its defined benefit scheme to 5 per cent this year, when inflation was running at 9 per cent.
Have you just nicked this article off The Times in totality? Not great form is it, even if it is credited!
Yup – a late Friday night heist. If you put a search on Henry Tapper on the Times Website – you’ll find plenty of my stuff there. They don’t pay me and I pay my subs!
Hat-tip to Rupert”
In the past I have seen trustees negotiate with the employer to convert discretionary increases into a firm commitment, which then must be paid each year, and is protected by PPF should the scheme flounder. The employer may be pleased to be free of the sort of vague open ended liability that is discretionary inflation increases and happy to accept a definite liability for fixed increases instead. Just don’t expect too much out of the negotiation, as the fixed increase gained may be modest.
Prior to 1997 many occupational pension schemes were funded on the basis that they would pay discretionary increases. In many cases they led members, often through a statement in the scheme booklet, to expect such increases. I passed my collection of scheme booklets from that era to the Pensions Archive Trust.
I also received information from some major schemes stating that members had “a reasonable expectation” of receiving discretionary increases, where they were being funded.