Pension Schemes

Baroness Laing of Elderslie Excerpts

Thursday 2nd May 2024 Commons Chamber

[Mr Carmichael]

It pains me to say it, but I think the right hon. Gentleman is absolutely right. What might have started with the oil and gas companies is clearly going much wider.

I should declare an interest, as I hope to be the beneficiary of a defined benefit pension, if I live that long, having been in the House before the move to career average earnings in 2011.

I will not rehearse what I said about the decision of BP, Shell and others not to pay a discretionary increase, which mattered significantly to their pensioners at a time when inflation was running north of 11%. However, it is worth reminding the House that a fundamental point of fairness is at stake here. When one is past retirement age, one no longer has the choices one has when one is of working age. If someone in employment is unhappy with the money they get for the work they do, they can look around and find another job, or they may choose to retrain and do something else more profitable. Once someone is of retirement age, they no longer have that choice and flexibility, which is why it has long been established as a matter of public policy that the beneficiaries of pension schemes require protection. After all, this is simply deferred income, with our being paid later, after we have stopped working, for the service we have done. It is a fundamental aspect of that protection that it should take as its starting point the undertakings that were given.

At BP and Shell, and I do not doubt ExxonMobil, people were given vigorous encouragement to join pension schemes and invest in them. They were given undertakings at the time that one advantage of a big pension scheme at a company such as that was that they would later in life have an income that was protected against inflation. So a question of good faith is at play here.

I have no doubt that for many of the big corporates, the BPs, Shells, Hewlett-Packards and so on, the possibility of paying money to those who are no longer economically active and contributing to their business is tiresome and inconvenient. I never cease to be amazed by the extent to which those at the top of these big corporates seem to think that somehow the corporates are as big as they are simply because of the role that they have played. They do not seem to understand that they are the inheritors of businesses that were built by others, who are now among those who would be the pension beneficiaries. If one is to stand on the shoulders of others, it is always good to respect the fact that one enjoys the view one has because of the shoulders on which one stands. I am sorry to say that that seems to have been forgotten in the boardrooms of too many of our large corporates.

I have expressed these concerns about BP, in particular, before. I remind the House that I have a large number of BP pensioners in my constituency, because for many years BP operated the oil terminal at Sullom Voe. It was a good employer and we valued its presence in the community for many decades. I am concerned now to see that BP pension fund trustees with a collective 94 years of membership of the fund have been replaced with four with precious little involvement, two of whom are citizens of the United States. Since we last debated this issue, both Shell and BP have again refused any discretionary increase to their beneficiaries—in essence, they are doubling down.

The briefing I have received from the Shell Pensions Group is of particular concern. As it is crafted succinctly and concisely, I shall, with your indulgence, Madam Deputy Speaker, read it into the record. It says:

“Shell has imposed this benefits cut upon its pensioners during a period when:

the Fund was in healthy surplus and well able to afford full cost of living increases without call upon Shell’s sponsor covenant; and

Shell, its shareholders and senior executives benefited hugely from the same energy crisis that was already causing their pensioners extremely high rises in their cost of living.”

The Shell Pensions Group has done considerable and detailed research on that point. From the actuarial reports and the scheme’s accounts, it concludes that

“during the same period, instead of a balanced approach using about 25% of the surplus (as quoted by Shell as necessary for a full cost of living increase) to the immediate benefit of the 93% of members whose pensions are currently deferred or in payment, the Trustee has largely opted to dissipate the surplus by massively accelerating completion of its Low Reliance (upon Shell) investment transition plan. This fifteen year plan was commenced in 2018, but with the acceleration opportunity provided by the surplus arising from increased bond deals, it was almost fully completed in 2022.”

That is where the money that could have funded the pension increases has gone. It has gone into accelerating a programme that was supposed to take 15 years and instead has been concluded in four years.

I am afraid to say to the Minister that the Shell Pensions Group also has strong concerns about the consultation that he launched on 24 February, under the heading “Options for Defined Benefit schemes”. It says:

“We are therefore aghast that…the Pension Minister opened a new consultation…with a view to identifying ways of encouraging and enabling sponsors of DB schemes to claw back surpluses. We feel that the foregoing demonstrates that sponsors require no assistance or encouragement in that and on the contrary, stronger measures are necessary to hold the surplus for the benefit of the beneficiaries, particularly in contributory schemes in which they have invested their own money by way of deferred salary and additional voluntary contributions.”

The Select Committee report has given careful consideration to this matter. Along with most of those to whom I speak, I am well pleased with the recommendations of the report in that regard.

BP also continues to double down. There continues to be no formal engagement with the pensioners’ group—what the previous chief executive officer called “the zero- engagement strategy”. I would have loved to have been at BP’s annual general meeting this year; by all accounts, it sounds to have been a heated affair. The analysis published recently in The Times by its financial editor ties in very well what BP is doing with the concerns we should all have about the future direction of travel. In a recent article, the financial editor wrote:

“Everyone at least pays lip service to the notion that meeting pension promises in full is paramount. No surplus should be touched without a meaty asset buffer being built up. No sponsor should be allowed to extract cash without showing a strong covenant—providing reassurance that it will still be around to pick up the pieces if things go wrong.

But even those safeguards aren’t nearly enough to fully protect members, according to a trenchantly argued submission from a ginger group of BP pension fund members, the BP Pensioners Group. Attempts by employers to evade their promises will be “legion” it says; they will “trim back or remove any benefit possible”; they will “abuse loopholes” in the rules to maximise their clawbacks. They will push hard to minimise what members should “reasonably expect”.

It also warned that the prospect of executive bonuses being fattened up by success in grabbing back surpluses will be far more potent in driving company behaviour than any residual feeling of responsibility to ensure schemes pay every last penny of promised pensions. The message is that it could all end up in an unseemly scramble.”

The article continues:

“The bitter dispute with BP is just “a foretaste” of how relations between many other DB pension fund members and their former employers are going to sour if the surplus-grabbing reforms are pushed through without proper safeguards. The old world is dead.”

That sums up very well the tension between surplus clawback and the need to honour the commitments that were given to beneficiaries. We see so often this mismatch, which affects the ability of the citizen to take on the big corporate, or the big public body. This is just the private sector version of what happened to the sub-postmasters. The Post Office was big enough, strong enough and well enough connected simply to ignore the sub-postmasters, to lie about them, to straight-bat their concerns, and to deny what was obvious to everyone until they could no longer manage to do so.

What is the agenda here, and ultimately who will be the winners and the losers? It is pretty obvious that the pensioners will not be the winners. We should consider the reputational damage that the issue is doing to BP and Shell. Obviously, any oil and gas company these days has to be a fairly thick-skinned corporate entity, but still I ask myself why they simply refuse to engage. Why are they denying the very obvious and clear justice of the case being put forward by their own pensioners groups? I find it difficult to see any explanation other than that the funds are being fattened up before being hived off to insurance companies or others.

The Times—The Thunderer—is not the only news outlet to have reported on BP pensions recently. On 29 March 2024, the PR Newswire reported a case in Houston, Texas, in which the judge told BP that it must reform its pension plan, following an eight-year legal battle over pension losses. Again, we are dealing with big corporates, which have deep pockets and can see off the attention of the small pension beneficiaries. PR Newswire said:

“A group of Standard Oil of Ohio (Sohio) oil workers received a winning decision…after an eight-year legal battle with BP Corporation North America, Inc. (BP), in a huge victory for oil workers, with a federal judge ruling that BP”—

this is worth paying attention to—

“‘committed fraud or similarly inequitable conduct’ in how it announced a pension formula change more than 30 years ago…Federal judge George C. Hanks, Jr., ruled that BP violated the Employee Retirement Income Security Act (ERISA) of 1974 and plaintiffs”—

that is, the workers—

“are entitled to appropriate redress by ‘equitable relief.’ The court ruled plaintiffs demonstrated BP committed multiple violations of ERISA in its communications to its employees…The Sohio retirees maintained, since 1989, BP had insisted the new formula would provide benefits as good as or better than the old formula. The judge agreed and found there is a pension shortfall for many.”

It is worth reflecting exactly what the people who took that case were motivated by: the work that they had done for BP. The article continues:

“Fritz Guenther, lead plaintiff, dedicated his work life to BP often in dangerous conditions on the North Slope of Alaska. He worked two weeks on, two weeks off for years relying on BP’s representations regarding his retirement. While he is still healthy, he says many of his colleagues face health issues, while others still have died within the past eight years. The retirees’ legal fight is taking place against a backdrop of a retirement wave nationwide, with the US Census Bureau estimating that one in five Americans will reach the age 65 or older by 2030.”

That was the nature of the commitment that BP employees in America gave to the company, and it is a measure of the moral bankruptcy that appears to be at the heart of that corporate that it could not see that payback was necessary for these people in their retirement.

I will touch briefly on the Work and Pensions Committee report to which I have repaired. I apologise for doing something that I was always told not to do as a law student: I will read from the rubric, rather than the substance of the report. I welcome what the Committee said about scheme surplus and governance. In particular, the executive summary says:

“Many schemes are much closer than they expected to being able to enter a buy-out arrangement with an insurer to secure scheme benefits.”

I touched on that earlier. The Committee was also right to talk about the various reasons why the flexibility would be advantageous to wider interests. There is a balance to be struck between the company, the beneficiary, and the national interest, in relation to the money being available for investment. That balance has to be properly struck, and it will inevitably slew towards the interests of Government and corporate interests, unless the necessary protections are put in place.

The Committee also observed:

“We note the current consultation on the level of funding a scheme would need to have for surplus extraction to be an option. However, strong governance will also be essential. We recommend that DWP should conduct an assessment of the regulatory and governance framework that would be needed to ensure member benefits are safe and take steps to mitigate the risks before proceeding.”

In this brave new world for defined benefit pensions, that is a warning that the Minister and the Government would do well to take onboard. If they do not, I am afraid that the losers at the end of the day will be our constituents, the beneficiaries of such pension schemes. We will look back in years to come, and we will see that the cases of BP, Shell, ExxonMobil, Hewlett-Packard and others are simply the canaries in the coalmine.

[Madam Deputy Speaker (Dame Eleanor Laing)]

I call the Chair of the Work and Pensions Committee.