Digital Equipment Ltd: Pension Scheme

Corri Wilson Excerpts

Tuesday 17th January 2017 Westminster Hall

[Corri Wilson (Ayr, Carrick and Cumnock) (SNP)]

I beg to move,

That this House has considered Digital Equipment Ltd’s pension scheme.

It is a pleasure to serve under your chairmanship, Mr McCabe, and to move this motion on behalf of my constituents. I am grateful to those Members who are here to take part in the debate. I am sure that they share my belief that this is an important topic.

Digital Equipment Ltd started in Massachusetts in the 1950s, in the days when computers were so big that they filled whole rooms. Its story is one of a dramatic rise and fall. From humble beginnings, it became a leading vendor of computer systems, including computers and software. By 1977, when Digital came to Ayr, it had grown into an entrepreneurial computer company boasting $1.5 billion in annual sales. In the ’70s and ’80s, computer technology changed rapidly, and Digital was at the forefront of that change. It quickly became a major employer not just in my constituency but across Scotland and the UK. At its peak, it employed around 1,500 people in Ayr.

Unfortunately, the company failed to adapt successfully after the rise of the personal computer eroded its minicomputer market, and it was acquired in June 1998 by Compaq, which merged with Hewlett Packard in 2002. Some parts of Digital were sold to Intel, but the plant in Ayr met its end. From the accounts given to me by my constituents, Digital was considered a good place to work, and it is remembered locally with fondness. It seems that its approach to technology—it was at the forefront of networking computers as peers—was mirrored in its corporate approach, with management structures that treated its people as equals.

The pension scheme was open to all employees and started paying pension from the age of 60 for both men and women. Although pension indexation was not guaranteed and Digital was not legally bound to award increases, the company made it its practice to do so. Staff were reassured that that custom would continue when Compaq acquired Digital in 1998, and Compaq continued to pay discretionary increases to pensioners. That trend was broken only following Hewlett Packard’s acquisition in 2002. In October 2006, the assets and liabilities of the Digital plan were transferred to the Digital section of Hewlett Packard’s retirement benefits plan, which provides for increases of pre-1997 pension rights at the discretion of the principal employer.

Since 2002, Digital pensioners in the UK have seen only two increases to their pre-1997 pensions, each amounting to 1%. In the past 14 years, the value of those pensions has stagnated. Those pensioners’ buying power has diminished and continues to shrink year on year, in contrast with their former colleagues in Europe. Pensioners in Hewlett Packard’s European subsidiaries have received regular cost of living increases, because only the UK Government have set an exclusion for pre-1997 contributions. The former staff of Digital in the UK do not feel quite so equal now.

I appreciate that HP is a huge multinational company that operates in around 150 countries and pays its pensioners in full accordance with the law in each of those countries, and I did not secure this debate to beat it about the head with a stick for not fulfilling its obligations to my constituents. However, I have great sympathy with those Digital employees who trusted their employer and paid into what they saw at the time as a great pension scheme, but have found that it does not support them in their old age and rely on Government support to get by. Many of my constituents paid into their Digital pensions for more than 20 years, and the bulk of their contributions were paid before 1997. Those who have not reached pensionable age do not yet know how little their pensions will be worth to them.

When this issue was first brought to my attention, I wrote to the Pensions Minister on behalf of my constituents to find out how the Government intended to resolve some of the issues with defined-benefit pension schemes such as the Digital scheme. I am grateful to him for his prompt response, in which he stated that

“the Government has no plans to force schemes to pay any increases to the pre-1997 pensions—beyond those that are already required by scheme rules”

and outlined that Government interference would be wrong and liability increases for which an employer had not planned or could not provide could lead to widespread scheme closures and risks. But I have a host of constituents who had planned for their retirement but have found that their pension scheme does not support them.

The Government have made it clear that, if the demands of the Hewlett Packard Pension Association, which has campaigned about this issue, were met, the additional liability on employers would mean that they would need to find extra money, and the Government do not plan to make them do that. I understand their position on that point. However, according to the Office for National Statistics occupational pension schemes survey, in 2015, there were around 5.2 million defined-benefit schemes in payment in the UK with rights accrued before 1997, of which more than 90% paid an increase. Just 8% of schemes like Digital’s used their discretion to deny any cost of living increase to their pensioners. Despite the fact that indexation is not mandatory for rights accrued before 1997, it appears that many schemes voluntarily apply some form of inflation protection to pensions in payment, and many apply limited price indexation retrospectively to service before 1997.

[Nicky Morgan (Loughborough) (Con)]

The hon. Lady is making an excellent case on behalf of her constituents. Does she agree that not only Digital or Hewlett Packard employees but those of other companies are affected? She mentioned that only 10% of defined-benefit pension schemes do not pay indexation. Campaigners are asking not for indexation to be backdated but for this issue to be corrected going forward. Does she also welcome the fact that the Pensions Minister has agreed to meet some of my constituents? I welcome the way that he is engaging with this debate.

[Corri Wilson]

The right hon. Lady makes a valid point that campaigners are not asking for indexation to be backdated, which would cause considerable difficulties for the companies involved. I will come to that point later.

I empathise with Hewlett Packard and other businesses that inherited defined-benefit schemes through expanding their operations during the boom years. They are all experiencing a global turnaround and an extremely challenging marketplace. Difficult decisions have to be made, and looking after the former employees of businesses that have long since been subsumed has to be balanced with current business concerns and the welfare of current workforces. Hewlett Packard is breaking no laws, and I understand that it fully appreciates the impact of its decision on its pensioner population and that is taken into account during annual reviews. However, I have greater sympathy for the concerns of the pensioners who have pensions with HP that will be frozen due to not being covered by legislation, and I would like the UK Government to take action to address the problems with defined-benefit schemes.

The Hewlett Packard Pension Association claims that withheld cost of living increases have so far cost pensioners an average of £24,000 compared with their colleagues whose contributions were made post-1997. That has led to severe financial hardship for many of those pensioners and has resulted in them being unable to afford an ordinary living pattern, being on the verge of poverty and requiring Government subsidies in the form of income support benefits.

[Sir Peter Bottomley (Worthing West) (Con)]

I speak because one of my constituents has been in contact with me. I have explained that I cannot stay for the whole debate. Is the hon. Lady essentially saying that it is the older, poorer pensioners who do not get increases, and the younger ones, who earn more, who do?

[Corri Wilson]

I thank the hon. Gentleman for his intervention. The people who have paid in for the longest are getting the least benefit back from the scheme, although I recognise that pension schemes have changed.

I would like to hear from the Government what options, if any, are open to scheme members. The Pensions Minister has stated that defined-benefit schemes will be looked at early this year and he intends to consider what the Government can do to tweak the environment of those schemes. Is indexation increases for all defined-benefit pension schemes one of the tweaks that he will look at? The change that HPPA is seeking is for the discrimination between pre-1997 and post-1997 contributions to be removed from legislation, and the minimum permissible increases for all defined-benefit pensions in payment in future to be indexed in line with increases in the retail prices index. Will the Government look at that in their forthcoming Green Paper?

The Scottish National party is committed to ensuring dignity in retirement for all pensioners in Scotland, and although many recent debates have focused on reducing the statutory minimum requirements rather than increasing them, it is important that we examine closely what will bring about fairness and sustainability and deliver that dignity. Those are the issues I want to address in opening the debate. I know that other hon. Members wish to participate, so I will draw to a close by appealing to the Minister to take into account the situation that, as we heard earlier, people—not just Digital pensioners—find themselves in.

Pension plans are made over decades. They are long-term investments in our future to ensure that we can survive when we are no longer working and to ensure that we are not a burden on the state or our families. However, it appears that plans that seemed sound at the time have turned out to be considerably less appealing 20, 30 or 40 years later. Too often, people pay into pension pots—whether private company pensions or indeed state pensions—all their lives but find that, when they retire, the goalposts have been moved. To paraphrase our national bard, the best laid schemes have indeed gang a-gley. I look to the Government and the forthcoming Green Paper to start addressing some of those issues on behalf of my constituents, and so that future generations can plan for their retirement.

--- Later in debate ---

[Corri Wilson]

I thank hon. Members for coming along today and welcome their contributions. I am also pleased that the issue is now on the Minister’s radar. If the Government are encouraging people to save for the future, people need to know that the goalposts will not change. As has been mentioned, trust is key. When people enter their retirement years, the last thing they want is to discover that they do not have enough to live on and that their pension is not what they thought it was, with absolutely no time to do anything about it. A contract is a contract and it needs to be transparent. Going forward, including through the Green Paper, I hope that the Government will look at the wider issue of having pension legislation that protects employees and employers.

Question put and agreed to.

Resolved,

That this House has considered Digital Equipment Ltd’s pension scheme.