Defined-benefit Pension Schemes

Justin Madders Excerpts

Tuesday 10th July 2018 Westminster Hall

[Justin Madders (Ellesmere Port and Neston) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate my hon. Friend the Member for Crewe and Nantwich (Laura Smith) on securing the debate and the excellent way in which she introduced it. Once again, she has proved to be a formidable advocate for her constituents. I do not intend to cover the same ground but will instead raise an issue facing one of my constituents that also affects thousands of members of defined-benefit pension schemes who are not entitled to any protection against rises in the cost of living.

My constituent, Mr Thorpe, is one of a significant number of members of the Foster Wheeler defined-benefit pension plan. Members of the scheme have received no increase in their pensions since 2002. This issue is not restricted to a single scheme—those with defined-benefit pensions accrued before 1997 are not entitled to any statutory inflation protection. While many enjoy discretionary increases, about 100,000 pre-1997 pensions receive no increase, because before then any increases were based on the rules of the scheme only. That remains the position for pensions earned before that date.

If the rules provide for increases, whether fixed rate or index-linked, they must continue to be paid. However, in the same way, if a scheme does not make such provision, none will be paid. In a number of schemes, increases are paid at the discretion of either the trustees or the employer, which leaves the living standards of thousands of people in our country not protected by law but subject to the discretion of others.

To illustrate the impact, Mr Thorpe provided me with a simple calculation based on the case of a fellow Foster Wheeler pensioner. We will say that this chap is called John. He retired in 2002 at the age of 60 and his pension at the age of retirement was £10,000 per annum. In 2017, when he was aged 75, the purchasing power of that pension was down to £5,600 per annum. By 2027, when he is aged 85, the purchasing power of John’s pension is likely to be less than £3,000 per annum—a 70% fall in the value of the pension over the course of his retirement. That has an impact on only a relatively small number of pensioners who paid into their pensions during a specific period of time but, as I hope I have illustrated, it has a massive impact on those individuals.

We face a situation not unlike that of the Women Against State Pension Inequality Campaign, in which people find themselves at a disadvantage simply because they were born in a particular timeframe or had worked prior to the introduction of particular legislation. When I wrote to the Minister, his response stated that he did not think that it would be right

“to consider retrospective changes to the rules on indexation”.

Given that the analysis by the House of Commons Library found that in 2015 FTSE 100 companies paid five times as much in dividends as they did in contributions to defined-benefit pension schemes, will he look again at what seems to be a very unfair situation? Employers should have a duty to do right by their employees and pensioners before they consider rewarding shareholders.

My constituent, Mr Thorpe, states that research indicates that the cost of inflation protecting the Foster Wheeler pre-1997 pensioners would be around £1 million per 1% awarded. That is a modest and sustainable cost for a fund with a value of almost £3 billion. Thousands of pre-1997 pensioners were extremely disappointed to see that the White Paper does not propose any solutions to that issue. As my hon. Friend the Member for Crewe and Nantwich said, pensions are deferred pay. Nobody would argue that it is sustainable or equitable for someone to have no pay rises related to the cost of living for a 25-year period or possibly longer. What does that say to the next generation of pensioners about the necessity of saving for their retirement? It is hardly an encouragement to them to save for their old age. In conclusion, I ask the Minister to look again at this issue.