Private Pension Schemes: Regulation
(1 year, 6 months ago)
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Mr Kevan Jones (North Durham) (Lab)
I am pleased to have secured the debate. The heading refers to “private pension schemes”, but I want to refer to a particular scheme, the Nissan pension plan, although I accept that some of the issues I will raise could affect other schemes as well.
Let me start by giving some of the background. The Nissan pension plan is a defined benefit scheme that was closed in 2020. In the north-east, this issue mainly affects those who work at the Nissan manufacturing plant, which is in the constituency of my hon. Friend the Member for Washington and Sunderland West (Mrs Hodgson). However, many of the employees lived, and continue to live, across the north-east, including in my constituency.
As in other pension schemes, benefits under the Nissan scheme are subject to an annual increase. However, the rate of that increase depends on when the pension entitlement was accrued. The part of the pension that was accrued after 2005 is increased by up to 2.5%. The part that was accrued between 1997 and 2005 is increased by 5%. Anything accrued before 1997—this is the main part of the scheme—is subject to discretionary increases by the pension trustees.
I say that at the beginning to explain the context of how the issue I am going to raise has come about. In 2011, the trustees of the Nissan pension scheme changed the rules around the funding when individuals take a lump sum out of their pension—when people retire, it is quite common that they commute a lump sum from their pension. The trustees decided that any lump sum would initially be paid through money in the accrual pot from 1997 to 2005—the pot with the highest increase. Should that pot be used up, they would go to the next pot—the post-2005 pot, which gets the second highest annual increase. Only if that had been exhausted could the pre-1997 contributions be touched. In effect, that reversed what happened under the plan’s previous rules. The impact is that, if a Nissan pension scheme member takes a lump sum from their pension, their remaining pension will increase at a lower annual rate—if there are any increases at all; I will come to the pre-1997 pots in a minute, which have not had an increase for 23 years. This was brought about by decisions taken by the pension trustees.
The issue was raised with me by my constituent Steve Clare, who has now been inundated as other pensioners have learned what has happened to their pensions. He has formed an action group, which has members from across not just the north-east of England but the country who are part of the Nissan pension scheme. Hundreds of people are affected, and they are finding out about these changes only when they come to take their pension and realise that they are not actually getting any increase in it.
Jim Shannon (Strangford) (DUP)
I commend the right hon. Member for bringing this issue forward. He said in his introduction that this issue will affect many other people across the United Kingdom who have pensions, and I will give an example. I recently had a young lady in my office whose pension has decreased over the last two years. She said, “Jim, I have no idea how these things work, but I know this: by the time I retire, my state pension won’t be enough. How do I know what to do?” That is the eternal question; the fact is that people have no idea what happens with their pension—they trust the provider. Does the right hon. Member therefore agree that, now more than ever, we need to ensure that providers are trustworthy—that is No. 1—and that that comes with better and good regulation, which, with respect, is down to the Minister and the Government?
Mr Jones
I thank the hon. Member—it would not be an Adjournment debate without his intervention. He raises an interesting point. Most people do not understand their pension; they put their trust in the provider. They think that they are saving for their retirement and that they should have a pension when they retire—let us be honest, we have all encouraged people to pay into a pension—only to be let down by the way in which the various schemes operate. I will touch on the regulation in a minute.
I want to make two key points at this stage. First, the change to the pension scheme was not directly communicated to pension plan members. In fact, having done some research, I understand there is no legal requirement for the scheme to do so. However, the trustees cover themselves slightly on page 8 of the 2011 annual report by saying that, during the planned year, they had made changes to some factors and a calculation of methodology—it is literally two lines in the annual report. I beg anyone to understand what that meant in practice for people’s pensions. The annual report provided no further detail and, frankly, it is not worth the paper it is written on. The first time most people found out about this was when they realised the pension they had already taken was not increasing.
According to the Pensions Regulator’s website, trustees must act in “the best interests” of scheme members, as well as “prudently, responsibly and honestly.” In this case, I would argue that the trustees are not putting the interests of pensioners first; they are putting the interests of Nissan Motor Corporation above those of pensioners. The cumulative effect of what they have done is to save Nissan money it would have put into the pension scheme. Nor would I argue that it is responsible or honest to hide the changes in less than two lines of an annual report. There was no direct communication to let pensioners, or potential pensioners, know about the changes and how they would affect future years.
When I heard about this, I thought the obvious person to go to was the pensions ombudsman or the Pensions Regulator. Well, there was a bit of a ping-pong between the two of them. One wrote to me saying that the other was responsible, and vice versa. It went backwards and forwards. Frankly, my experience of them is that they are about as much good as a chocolate teapot. They are just blaming one another. It was this Member of Parliament writing to them—heaven help an individual pensioner writing to them to get any joy out of them.
It comes back to the point raised by the hon. Member for Strangford (Jim Shannon) on regulation and how we control these pension schemes. As I say, my experience of those two organisations has not been very good, so I would like the Minister to look at that point about the regulator and the ombudsman.
Mary Kelly Foy (City of Durham) (Lab)
Constituents have contacted me on this very issue, so I thank my right hon. Friend for securing this debate. Does he agree that this is an outrageous way to treat workers and that, frankly, it reflects terribly on Nissan?
Mr Jones
It is. These people have worked hard and saved into their pension. They think they have done the right thing and, through no fault of their own, they have found themselves in this position.
I did finally get a line out of the pensions ombudsman; he said that he was not prepared to look at the case because that notification, that one line in the annual report, was good enough. I find it absolutely amazing that it could be argued that this is communication with pension members. I doubt very many people actually read their pension scheme’s annual report. I am one of the sad people who do, but that is because of my trade union background. Many people do not. My hon. Friend the Member for Sunderland Central (Julie Elliott) knows that I am a bit of an anorak when it comes to the pension industry. Again, the idea that that can be held up as showing that the pension trustees have informed the pensioners is ridiculous. But that was the end of the game—no more correspondence came forward from either the regulator or the ombudsman.
Ben Everitt (Milton Keynes North) (Con)
I am grateful to the right hon. Member for securing this debate. I know how hard he has worked on this issue, and I am also grateful for his time in talking me through some of these issues. I have been contacted by two constituents who have also been affected by this. They make a similar point to him, pointing to the one and a half lines in the “annual pension meeting report”, as they term it. So it is possibly not even the annual report. They say that the impact of that change has never been explained. Does he agree with my constituent who said that this was a very underhand way of approaching pensions?
Mr Jones
It is a very underhand way. If people’s pensions are going to be changed by some trustees, they should at least fully inform people of the effects. In this case, some people based their decision, especially before 2011, on what lump sum they would take on what was going to go forward. I would be interested to know whether those retiring now and accessing this scheme are being told, “In most of your pension, you won’t get any increase in future.” The hon. Gentleman demonstrates another point: this affects people not just in the north-east of England, but across the country. Transparency and honesty with people about their pensions has to be achieved.
Mrs Sharon Hodgson (Washington and Sunderland West) (Lab)
I commend my right hon. Friend for all the work he has done on this issue and for bringing this debate tonight. He is talking about the number of people affected and saying that they are not just in my patch, in Sunderland, or even just in the north-east; they could be spread right across the country. Does he have any idea of the number of people who may be involved and affected by this?
Mr Jones
I do not, but I know that Mr Clare, my constituent who has put this on Facebook, has been inundated with messages from people from around the country who were not aware. Partly it is the cost of living crisis—suddenly, people are thinking, “Wait a minute, why isn’t my pension going up as much as it used to?” It is all right saying to people, “You should be tracking this and what you’re doing” but most people do not live like that. They just assume that a credible pension scheme such as this should treat them fairly and that they would actually get this. So the number of people affected could be quite large.
Secondly, I said earlier that the pre-1997 benefits are subject to an annual increase at the discretion of the trustees. Well, there has been no discretionary increase in these pension pots in the Nissan pension scheme for 23 years. Nissan has made no additional contributions to the scheme to provide any increase. If someone’s pension is mainly in the pre-1997 pot, inflation is eating it away: inflation in the cost of living now, but also in future. If they live long enough, it will basically be worthless. We have 9% inflation at the moment, but if that is not dealt with, it will eat away at the pensions of those people who expected that they would have a comfortable retirement.
In 2020, Nissan said that the defined-benefit scheme was unsustainable. Let us be honest, many defined-benefit schemes were closed. However, the issue with that is in 2020, Nissan made £68 million in profit. The company has also received many millions of pounds of public money, but it is clearly not doing the right thing by its workers.
Mr Jones
Most people did not find out about the implications until they realised that their pension was not being increased. The fact that Nissan had not put anything into the scheme means that the pensioners are basically paying for the scheme as it goes forward. Ultimately, Nissan needs to put money into the scheme, just as other organisations have had to put into their schemes, but that brings me back to the point about what the trustees are doing—they are clearly not acting in the interests of the pensioners.
This is one scheme, and I accept that there are others where this will have happened. Hard-working people are being short-changed. They trusted that the pension trustees would be looking after their interests, when they clearly are not.
I know some people will say, “Why are you attacking Nissan?” Well, I do not wish to do that. Nissan has been a fantastic employer, bringing employment and regeneration to the north-east, over the last 20-odd years. Nissan has not only employed people, but it has provided jobs in the supply chain as well. It has been an economic success story for the north-east. However, we must remember that that success has been derived from the hard work of people who are now in receipt of pensions. We should not forget that, in terms of the situation in which they now find themselves.
The Minister will know that this will not be the only scheme that has been affected, but could she look at the ombudsman and the regulator? They are clearly not fit for purpose. In this case, we have an issue that will grow. Possibly after this debate, more people will look at their pension statements and realise how they are being short-changed. It is not fair that hard-working, loyal employees of Nissan are being made to pay for issues that are not theirs. They have worked hard and deserve their retirement. They expected a good retirement but, alas, they are not going to get it, in many cases.
The Parliamentary Under-Secretary of State for Work and Pensions (Laura Trott)
I congratulate the right hon. Member for North Durham (Mr Jones) on securing the debate and I thank all hon. Members who have contributed to it.
It is absolutely vital that pension savers have confidence in the running of their pensions, as we have discussed this evening. Employers and trustees must be open and transparent with their pension scheme members, and be absolutely clear when they make changes to the benefits members will receive or how they are able to take their pensions.
Savers in defined-benefit schemes are in entirely advantageous positions, which is why the Government require specialist advice to be sought in advance of anyone wanting to transfer significant savings out of a defined-benefit scheme and into a defined-contribution scheme.
It is equally important that when members opt to make changes to the way they receive their benefits, or indeed any pensions, they can access the information and guidance they need to understand what the implications of that would be. It is extremely concerning that there seems to have been a lack of communication, as the right hon. Gentleman outlined. It is of course the case that many schemes offer members a number of choices of how to take their benefits, such as partly in a lump sum if the scheme rules and tax rules permit it. In these cases, the scheme rules detail the calculations to be used, and the trustees can change the details of the scheme rules if they are able to do so within the scheme.
Although legislation is silent on the way in which these rules and calculations must operate, there are safeguards for members. Trustees, as discussed, have a duty to act in the interest of all members rather than of any particular group, and to do so they must take into account a range of factors. They will, for example, take into account the funding position of the scheme to protect the interests of current and future members and may make changes to the shape of benefit arrangements in the pursuit of that goal provided that the scheme rules allow it. Trustees should also work closely with the scheme actuary to ensure that all members get a fair value from the commutation arrangements. But— this is the key point of the debate today—it is crucial that each member has sufficient information before deciding whether alternative arrangements, such as taking a lump sum, are the best course of action for them. If members feel that they were given incorrect or insufficient information to make an informed choice, or if the trustees did not act according to the scheme rules, then they can take their complaint to the pensions ombudsman.
The right hon. Gentleman said that he wrote to the regulator and to the ombudsman and both referred him to the other, and he asked what redress there is for members in this situation. Let me clarify the role of the two organisations. The Pensions Regulator is the UK regulator of workplace pension schemes. It makes sure that employers put their staff into a pension scheme and pay money into it. It also makes sure that workplace pension schemes are run properly, so that people can save for their later years. Its focus is on the running of those pension schemes, trustees and scheme managers. There are duties on those parties and those working with them, including to report breaches to the regulator.
The pensions ombudsman, on the other hand, adjudicates on disputes between pension schemes and their members, as we are discussing in this case. If members of any scheme would like help in understanding options for retirement income and any documentation they have received for their scheme, I encourage them in the first instance to contact MoneyHelper, which is provided by the Money and Pensions Service, an independent, non-departmental public body.
Julie Elliott (Sunderland Central) (Lab)
Many dozens of my constituents are affected by the Nissan pension scheme. We have discussed in this debate the role of the ombudsman. The answer the ombudsman has given in this case is entirely unsatisfactory, and I know that all my constituents affected think so too. What was the Minister’s view of the ombudsman’s response in this case?
Laura Trott
I will come to that in a moment. If the hon. Lady thinks I have not answered her question properly, then she is very welcome to intervene again.
As I was saying, the Money and Pensions Service is an independent, non-departmental public body, which provides a free information and guidance service to the public on all matters related to workplace and personal pension schemes. In this case, I understand that in determining one case—not the individual case of Mr Steve Clare, but a case relating to identical issues in the Nissan pension plan—the ombudsman noted that the plan members were presented with an illustration of future benefits and options in retirement. However, if that was not the case—and certainly from the speech of the right hon. Member for North Durham that is not what appears to have happened—I ask him to provide me with all the details that he has and I will raise it directly with the ombudsman myself and provide a copy of the response.
Ben Everitt
That is exactly the case, certainly for one of the two constituents I have been contacted by. Further to that, the word they use in their correspondence to me is that they were “encouraged” to take out a lump sum. To me, that goes beyond giving information and crosses over potentially into giving advice. Given that that advice was not in their best interest, because it has affected their pension so disastrously—to the tune of more than £100,000—is there a case for looking at the regulatory side, rather than the ombudsman, in relation to the advice that has been given?
Laura Trott
It is absolutely correct that scheme members should have received an illustration, as discussed. If that was not the case, that is something we need to pursue. If instead they received advice that was indeed misleading, that should absolutely be taken up with the ombudsman and, where necessary, the regulator. Again, if my hon. Friend would like to pass me any information he has on that case, I will take it up directly with the ombudsman.
Mr Kevan Jones
I am not aware of any illustrations being given, but, if they were, that illustration would also have had to explain to individuals where the lump sum was coming out of and its impact on future increases on the pension. I shall do more research and talk to people, but I am not aware that that type of detail was ever explained to people, as the hon. Member for Milton Keynes North (Ben Everitt) said.
Laura Trott
The right hon. Gentleman is right that that should have happened; if it did not happen, that is a matter for the ombudsman. That is what I think we need to pursue following this debate. He is also absolutely right that those changes should have been communicated clearly and directly, to allow people to plan properly for retirement.
I am about to sum up, so if anyone else would like to intervene, please do. Otherwise, I just want to say that I am of course happy to discuss the matter further with the right hon. Gentleman, and indeed with anybody else who would like to take it up with me. I commend him once again for bringing this very important matter to the attention of the House.
Question put and agreed to.