(1 day, 6 hours ago)
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Luke Akehurst (North Durham) (Lab)
Across the country, an estimated 1 million pensioners are losing out on pension increases that they ought to be entitled to, simply because the hard shift that they put in to pay into their pensions happened to occur before an arbitrary date in a calendar. That is not good enough. I have secured this debate to shed light on the injustice of the lack of statutory increases for pre-1997 defined-benefit pension schemes, and to ask the Minister what the Government are going to do about it.
Prior to 6 April 1997, defined-benefit pension schemes in the UK were not legally required to increase in line with inflation. That oversight left pensioners, who had worked hard for their whole lives to pay into a pension guaranteeing security in retirement, at risk of seeing their hard work outstripped by the rising cost of living, reducing their financial position in retirement.
The Pensions Act 1995 sought to address the problem, introducing statutory limited price indexation, meaning that those pensions were mandated in law to rise as inflation eroded their real value. However, the change applied only to pension contributions made after April 1997. Almost 30 years on, pre-1997 defined-benefit pensions are subject to the same injustice identified and partially resolved by the Government all that time ago. It is up to the trustees of these pre-1997 funds to decide the level of pension increases granted.
I have secured this debate, during which I am aware that a number of right hon. and hon. Members will seek to intervene, to challenge the Government to finish the job, started almost three decades ago, of ensuring that every recipient of a defined-benefit pension scheme has the dignity and security in retirement that they have worked so hard for.
The Pre-97 Pension Justice campaign group of over 400 pensioners, who I pay tribute to for their persistent campaigning on this issue, has informed me of at least 13 companies where this spell of zero increases—effectively real-terms cuts to pensions every year—stretches to a decade or more. Top of the list, sadly, is Nissan, which has not increased these kinds of pensions for a quarter of a century. In those 25 years, the price of goods has almost doubled: the contents of a shopping basket worth £100 in 2001 would now cost £194.
Prior to this 25-year period, the trustees of the Nissan pension had set a precedent that when the pension scheme delivered a surplus, a discretionary increase would be passed on to members. Between 1992 and 2001, when the scheme was in surplus, increases of between 2% and 3% were granted. This pattern was disturbed after 2001, when the scheme went into deficit, but when the scheme returned to a surplus in 2022, the trustees broke with precedent and refused to grant an increase. The same has happened again every year since, which leads the pensioners to fear that there is a new policy by the trustees that no discretionary increases will ever again be handed to the retired Nissan workers holding these pensions.
Several hon. Members rose—
Luke Akehurst
I will give way to the right hon. Member for New Forest East (Sir Julian Lewis) first.
Sir Julian Lewis (New Forest East) (Con)
The hon. Gentleman is making an excellent presentation. Rather curiously, up until 2023, ExxonMobil pensioners got automatically indexed uplifts to their pensions, but for some reason from that date onwards, the company changed its policy and now they are not getting the discretionary uplift. The trustees there say that they have no power and that it is up to the company to decide whether this discretionary uplift occurs. Is one way forward perhaps to ask the Minister to give an undertaking that the trustees should have the power to award such discretionary uplifts linked to indexation?
Luke Akehurst
I thank the right hon. Gentleman for drawing attention to that particular anomaly.
Luke Akehurst
I see that my hon. Friend and constituency neighbour wishes to intervene.
Luke Akehurst
I have had written communications and met with constituents who used to work alongside my hon. Friend’s constituents at Nissan. Sadly, in the case of Nissan and countless others, trustees have proven themselves not to be accountable enough for the decisions that affect those holding pensions. Evidence submitted to the Pensions Ombudsman shows multiple cases in which trustees have not even considered key factors when deciding discretionary increases.
Dame Nia Griffith (Llanelli) (Lab)
I congratulate my hon. Friend on securing this debate and on clearly laying out the injustice. Does he have concerns, as I do, that the make-up of the trustee boards means that the company is in control? That is either because the trustees are current employees and their promotion will depend on the company or because they have been appointed specifically by the company. Therefore, even where trustees vote unanimously for a rise, as in the case of 3M, it can be blocked by the company. That has happened for successive years with these companies.
Luke Akehurst
I absolutely share that concern. My understanding from the constituent I met is that Nissan’s trustees include a majority of company appointees who outvote the trustees representing the members of the scheme. Key factors have been ignored, from ignoring inflation to overlooking member contributions. For that reason, I believe that statutory intervention is urgently required.
Matt Rodda (Reading Central) (Lab)
My hon. Friend is making an excellent speech, and I congratulate him on securing today’s debate. Has he noticed in his work on this issue that in some cases, some international companies are paying inflationary increases in other jurisdictions where they operate, but not in the UK? There have been a number of instances of that in my area, where pensioners from Berkshire in schemes run by international companies have seen exactly that. For example, Irish pensioners or US pensioners get an increase, but not British pensioners.
Luke Akehurst
I thank my hon. Friend for that very useful contribution. I was not aware of that, and I am shocked. It is a further injustice if pensioners in the UK are treated differently from pensioners who worked for the same company in other territories. While the Pensions Ombudsman can establish whether procedure has been followed, only politicians can decide whether outcomes are fair. Will the Minister set out what scope he sees for his role in ensuring fairness over defined benefit pension schemes?
There is another injustice in the way that the Nissan scheme treats its pension holders. Members across the House will be aware that most people take up the option to take a quarter of their pension as a tax-free lump sum. That money is vital to kick-starting retirement, allowing people to pay off their mortgages and other major debts or make major purchases when they first become pensioners. However, the split between pre-1997 and post-1997 pensions means that this scheme, which should be hugely beneficial for those retiring, can be and is being used against them.
The Nissan pension scheme has been paying out its lump sums from those parts of people’s pension funds where the payments would have increased with inflation and leaving in their pension pot the pre-1997 part where the benefits will not track inflation. The impact of that means that, once a lump sum has been taken, the parts of the pension that are left will receive lower or no annual increases. That is clearly unjust.
Worst of all, this change was not even directly communicated with pension holders. My constituents knew about what is frankly an accounting trick only as they noticed their pension increasing by less than anticipated over the years. Because of that, I hope the Minister is able to set out what the Government’s position is on which part of these kinds of pensions should be paid out as a lump sum. Will he work to protect pensioners from quirks of sum calculation being used to deny them the increases that they need to keep up with the change in the cost of living?
I want to recognise that Nissan is otherwise an excellent employer and a hugely important contributor to our regional economy in the north-east and, indeed, to the British manufacturing industry as a whole. I am sure that my hon. Friend and neighbour the Member for Blaydon and Consett (Liz Twist), who also has many constituents working there, agrees. Not only has Nissan employed people, it has provided jobs deep into the supply chain. Given its status in the region as a very much admired employer, it is a real shame that it seems to be forgetting that its success, bringing employment and regeneration to the north-east over the past 40 years, comes from its loyal workforce. These cost-saving exercises on the pension scheme are no way to treat employees who have worked so hard and deserve a decent retirement.
Crucially, discretion over what increases pension holders receive currently lies with the trustees. However, the most common long-term target for a pension scheme is buying out with an insurer, an outcome that takes decisions of that nature out of the hands of trustees. When a scheme is bought out, trustee discretion disappears entirely, meaning that without legislative reform, thousands of pensioners will lose even the faint hope that the trustees might give them an increase. Given that the Government have made clear their desire to put more power into the hands of trustees of pension schemes, I would appreciate if the Minister could set out whether the Government have made any assessment of that risk, and whether they intend to take any action to benefit those pension holders affected by insurer buy-out.
To illustrate the financial impact of this injustice, I will tell the House about a constituent of mine. Steve, who I have met, started working for Nissan in 1985, meaning that a considerable amount of his pension contributions were made before the 1997 cut-off. He retired in January 2016. Since his retirement, consumer price index inflation has totalled 40.3%, while Steve’s pension has increased by only 8.3%, the minimum legally required for his post-1997 contributions. In real terms, Steve’s pension has decreased by a staggering 32.5% in just nine years. Meanwhile, the state pension has increased by 48% since 2016, when Steve retired. We are right to be proud of the increases to the state pension we have delivered, including £575 this year for the new state pension. If we believe in the importance of protecting state pensioners—a belief we have backed up with real money out of the door—why should we not apply the same standard to defined benefit pension schemes?
Steve is just one example of someone being short-changed by this anomaly. My hon. Friends the Members for Hartlepool (Mr Brash), for Blyth and Ashington (Ian Lavery), for Blaydon and Consett, for City of Durham (Mary Kelly Foy), for Newcastle upon Tyne East and Wallsend (Mary Glindon), for South Shields (Emma Lewell), for Easington (Grahame Morris) and for Jarrow and Gateshead East (Kate Osborne), along with others, have all been advocating for constituents involved in the dispute with the Nissan pension scheme. I also pay tribute to my hon. Friend the Member for Washington and Gateshead South (Mrs Hodgson), who has been fighting for the hard-working people at Nissan as the constituency MP for the site. I congratulate her on her very recent and well-deserved promotion to ministerial office, which unfortunately precludes her from participating in the debate.
Nissan is not an isolated case; it is indicative of a much wider problem, where the state is failing to stand up for fairness and the value of a pension is drastically determined by which side of an arbitrary cut-off date contributions were made. Parliament has already been presented with a clear solution to this matter. I commend my hon. Friend the Member for Llanelli (Dame Nia Griffith) on tabling new clause 22 to the Pension Schemes Bill, which would have legislated to address this issue. Disappointingly, the Government indicated opposition to that amendment, and it was not put to a vote. Will the Minister elaborate on why the Government were unwilling to support my hon. Friend’s amendment?
I am aware that Ministers have previously cautioned against retrospective changes to pensions that would go the full way to correcting this injustice. While I do not agree that we should accept an injustice just because it has already happened, I hope the Minister will consider whether a statutory increase to pre-1997 defined benefit pensions could be enacted from this point forward, even if it cannot be retrospectively applied. Earlier this month, I co-ordinated a joint letter with colleagues whose constituents are missing out on money to which we feel they are entitled. That letter calls on Ministers to address the problem I am raising today by supporting my hon. Friend’s new clause 22, or by committing to bring forward similar measures before the Pension Schemes Bill achieves Royal Assent.
The Pension Schemes Bill now sits with the other place, where my predecessor, the now Lord Beamish, will make the case for those adversely affected by this oversight in the law. I urge the Government to accept any forthcoming amendments on this matter, and to commit to working with those of us advocating for a fair resolution for our constituents. I understand that the Bill is completing its final stages, meaning that time for action is running out. Increasing pre-1997 pensions would not only benefit the more than 1 million pensioners in question; it would also mean greater tax receipts for the state, thereby boosting public services and allowing more investment in communities like the one I represent.
The Government have already taken limited but welcome steps to address the injustice for holders of pre-1997 pensions. They have announced legislative changes to allow the pension protection fund and the financial assistance scheme to start paying inflation-linked increases, capped at 2.5%, on pre-1997 pensions—something that had previously been prohibited under the law. Ministers have confirmed that this change will benefit around a quarter of a million PPF members by improving their payments by an average of £400 a year, with the earliest increases expected from January 2027 once the legislation is in place.
The Government have also stated that the reforms in the Pension Schemes Bill, particularly those relating to surplus release, are intended to give trustees more flexibility to address this issue in future. Have the principles that have guided the Government in making those welcome adjustments been applied to the remaining pre-1997 pension holders who have been left behind? I hope that Members will agree that there is no justification for why the constituents I have mentioned today should not receive a pension that keeps up with the rising cost of living.
I know the House is committed to dignity and security in retirement as a key part of the social contract that we seek to uphold. I have even heard anecdotal evidence that pensioners affected by the change have had to return to work after they have retired, or have downsized from their family home to make ends meet. No pensioner should see their dignity and security eroded by an accident of timing. I therefore urge the Government to do more to apply the current values to pre-1997 pensions. I look forward to hearing from my hon. Friend the Minister on this matter.
Jesse Norman (Hereford and South Herefordshire) (Con)
I congratulate the hon. Member for North Durham (Luke Akehurst) on his excellent speech and on securing this debate, and all those who have participated in it. I thank the Minister for allowing me a few words.
On your behalf, Madam Deputy Speaker, I will mention your constituent Steve Mawby, because he has been a key campaigner in this important and very difficult area. I first got involved in it before I became a Member of Parliament in 2007, and I pay particular tribute to the late Roy Harries and Les Collard, because they brought to my attention the injustice that had been perpetrated on older pensioners by the Special Metals Wiggin pension fund. Hundreds of people were affected by that, and, alas, many of them are now dead. They were almost invariably widows, who were left receiving half of a much-diminished pension. These pensioners have not received a single penny in top-up payments since the legislation kicked in, because the company’s trustees have decided not to pay any discretionary bonuses at any point. The result is that those pensioners’ incomes are 55% lower than they would have been, and, for widows, half of that. It is an absolute outrage and a great historical injustice, and as the hon. Member says, the fact that an injustice occurred in the past does not mean that it is not important to address it now.
Of course, there was a clear blunder in the legislation. I have raised this issue in the House over the years, and it is a matter of great embarrassment that previous Conservative Administrations and the coalition Government did not address it, but there is now the opportunity to do so. On the Special Metals Wiggin pension fund, I recognise that the trustees are often directly or indirectly controlled by the company, regardless of whether they are formally independent. The company has not paid any bonuses or top-ups, and it is now owned by a large American company, Precision Castparts Corp., which is itself owned by Warren Buffett and Berkshire Hathaway. I have written to Buffett, who has said that he is not willing to help either. It is a source of great sadness to me that even such a great philanthropist and entrepreneur such should have failed to do so.
My question to the Minister is this: given that the Special Metals Wiggin pension fund has been in surplus for many years, could he, as well as considering the question of historical injustice, consider the question of whether the trustees should be required, out of the surpluses they have, to pay top-ups to the pensioners? I hope they will consider doing so retrospectively but, if not, they should do so in way that is generous, that recognises the terrible injustice that has been done, and that pays proper tribute to Les Collard, Roy Harries and all the great men and women of the Wiggin pensioners, who we justly celebrate and whose injustice we seek to fight.
The Parliamentary Under-Secretary of State for Work and Pensions (Torsten Bell)
I am pleased that my hon. Friend the Member for North Durham (Luke Akehurst) has secured the debate on this important matter and thank him for the thoughtful way in which he described the impact on his constituents. He spoke on behalf of many others as well, and in particular those members of the Nissan pension scheme. I join him in praising the persistent campaigners on this issue. He mentioned one organisation in particular—I have met its members, who have been campaigning for many years and have not shown any let-up in their energy during that time.
A period of high inflation and the return of many defined-benefit schemes to surplus has rightfully put up in lights of the situation of members whose pre-1997 benefits are not protected by statutory indexation. That wider debate has rightly featured heavily during the passage of the Pension Schemes Bill. It was also discussed by the Work and Pensions Committee prior to the election. As my hon. Friend said, it was considered in some length here when we debated new clause 22, when we heard many powerful speeches, including from my hon. Friend the Member for Llanelli (Dame Nia Griffith). The right hon. Member for Hereford and South Herefordshire (Jesse Norman), as he said, has been raising the issue for many years, and I have also discussed it with the right hon. Member for New Forest East (Sir Julian Lewis).
I have met many scheme members and their representatives. Recently my hon. Friend the Member for Llanelli and I met three members in Swansea to discuss exactly this issue in a lot of detail. I was grateful for their time and to her for organising that discussion.
I have listened, and I recognise the difficulties faced by some scheme members who can now see their income, their living standards and the quality of their retirement eroded by inflation, as my hon. Friend the Member for North Durham said. It is particularly understandable that members are disappointed when schemes do not award discretionary increases when they are in a strong funding position—that is obviously the change that has happened over the last few years.
As my hon. Friend will know, defined-benefit pension schemes have very different approaches to awarding pre-1997 indexation. The truth is—obviously, we will not be discussing these schemes at length today—most do provide for increases under their scheme rules; others do not allow it or require it at all; and a significant number allow discretionary increases only where there is agreement between both trustees and the sponsoring employer. Those are the cases that we are mainly focusing on in this debate. The result is that, in some cases, when employers are unwilling to support discretionary increases —even when the scheme is in a strong funding position—trustees can effectively be prevented from acting.
Jesse Norman
I will not detain the Minister long. If a group of trustees never pays a discretionary bonus, even though the scheme is in surplus, it starts to look like it is a policy of theirs to discriminate against a subset of their beneficiaries, and I think that is illegal. I would be grateful for his guidance on that.
Torsten Bell
I think there is a slightly harder case, which is examples where schemes had an established practice of paying discretionary increases—my hon. Friend the Member for North Durham mentioned Nissan cases from before the turn of this century, where that was the practice—and that was seen as the norm, and then, for different phases, such as when schemes slipped into deficit, as many did, they stopped and then did not restart when the surplus arrived. That is the case raised here. In many ways, those are the harder cases to understand, and I will come to how we think about such cases as we go forward.
Jesse Norman
I can understand why the Minister thinks those cases are harder; in some respects, they are less hard, because in those cases changes have been made reflecting circumstances. In the cases that I am talking about, there is a policy to discriminate against a settled group of beneficiaries. That is the bit that I think is potentially illegal.
Torsten Bell
I hear the right hon. Member’s point. I am not going to comment on individual legal cases, obviously, but the basis of the distinction at 1997 reflects the decisions taken in 1995 by a previous Conservative Administration to introduce statutory indexation, but not wanting to do that for accruals that had already taken place. The Pensions Act 1995 brought in statutory indexation from 1997 onwards.
We can recognise the underlying reasons for this situation—not retrospectively changing the basis of scheme rules—while sharing Members’ huge frustrations with it. It is why I continue to encourage trustees and sponsoring employers to think carefully about the effect of inflation on member benefits when making decisions. The Pensions Regulator already sets out that trustees should consider specifically—not just generally—the situation of those members and whether the scheme has a history of making such awards.
Pensions legislation sets minimum legal standards that all schemes must meet, and they are designed to strike the balance between fair and workable, and having a stable DB landscape. I completely recognise the case for change that the right hon. Member for New Forest East has made today and in the past. The challenge is that it would be unreasonable to retrospectively change long-standing rules in blanket terms in a way that would put some schemes’ stability at risk, whether that is today by fundamentally changing their funding position, or in future, when we do not know what the world will look like.
Sir Julian Lewis
If the Minister would follow the recommendation of at least giving the trustees the full power to make the decision over discretionary awards and taking it away from the company, one could be pretty sure that if the scheme went into deficit, the trustees would act accordingly.
Torsten Bell
I will come in a second to the point that the right hon. Gentleman is making, which is about where power lies in the system.
Dame Nia Griffith
I thank the Minister for his time in meeting us in Swansea, as well as the time he has spent on this topic here in the House. He mentions the disadvantages of making any sort of blanket legislation, but does he not agree that there are ways we can caveat that, such as applying it when the scheme is in surplus? Does he not recognise that most of these schemes were paying increases until they stopped, either because of financial crisis or because they realised they did not have to? There are options that could be explored. Would he be willing to do that?
Torsten Bell
My hon. Friend has been a powerful campaigner on this issue. I recognise her point about situations where there was a habit of paying discretionary increases in the past. On the question of what we do about it, let me come to the Government’s approach, and then I will perhaps offer two reflections specifically on the points that have been raised on which we might want to continue making progress, even if I cannot satisfy all the demands for instantaneous change today.
So, what are we doing? The reforms introduced in the Pension Schemes Bill will give more trustees of such schemes the flexibility to release surplus. That will help shape the balance of power between trustees and employers when it comes to well-funded schemes. There is not nothing we can do, and the Pension Schemes Bill will make a difference, particularly for the kind of schemes being raised tonight—those which have a surplus today.
The decision to release surplus will remain entirely with the trustees. That will place them in a better position to negotiate benefit improvements as part of any release. It is entirely for trustees, working with the employer, to determine how members may benefit. Let me be really clear: if trustees wish to insist on discretionary pre-1997 indexation as a condition for surplus release, they will be entitled to do so. I expect that many will, given the discussions I have had with them. We are obviously in the early stages of that Bill; it has not passed through Parliament yet. Employers and trustees are thinking through a world where they suddenly find themselves with a surplus, and in many cases are thinking about what that means for the future of their pension scheme. These reforms recognise trustees’ and members’ understandable frustration with the status quo, but also the diverse circumstances of DB schemes.
Let me end with two reflections on the wider contributions that Members have made, particularly my hon. Friend the Member for North Durham, who has brought us here today. First, whatever the scheme rules, there is no excuse for employers not to fully engage with trustees on these decisions and questions, and I have too often heard from members and trustees that employers have not done so. I will take that away to consider what more we can do to make sure there is an open consultation and people are clear about what is going on and how decisions are taken.
Secondly, given the importance of this matter, I recognise that it would be beneficial to develop a clearer understanding of the circumstances, particularly in relation to the issue that has been raised about well-funded schemes are choosing actively not to award discretionary increases, particularly where employer consent is the binding constraint. The Pensions Regulator has been considering how to build its evidence base in this area, and I will talk to it in the weeks and months ahead about what more we can do about that.
I will finish by paying tribute to my hon. Friend and the other right hon. and hon. Members who have participated in this debate, but also to Members who are not here, but have consistently raised this issue with me. In the coming weeks, I will be meeting other Members who have asked me to discuss this with them and their constituents. It is important that we have the chance to discuss these important matters, and I am glad that we have done so.
Question put and agreed to.