British Airways (Pensions Uprating)

Michael Tomlinson Excerpts

Monday 14th September 2015 Commons Chamber

[Mr Vara]

My hon. Friend will be aware that the judiciary are completely independent of the Executive and, indeed, Parliament. It is not appropriate for me to comment on what the judiciary say because they are completely independent and entitled to say what they want in relation to court decisions.

[Michael Tomlinson (Mid Dorset and North Poole) (Con)]

Will the Minister give way?

[Mr Vara]

I will, but I have only 11 more minutes and hope that colleagues will be mindful of that.

[Michael Tomlinson]

I understand the comments that the Minister has made, but will he none the less accept the frustration felt by many people, including my constituents, at obtaining less than they had anticipated when saving for their retirement?

[Mr Vara]

I fully appreciate the frustration—indeed, anger—of people who were expecting something on their retirement but who will no longer receive it. I hope, however, that colleagues will recognise that the pension scheme was set up in 1948, at a time of nationalised industries when nationalisation was the norm, and we now live in a totally different climate with a totally different economy where the industry is not nationalised any more. We have to abide by the rules of the set-up of that pension scheme. As a trust, it is at arm’s-length from anything that the Government can do. People here who know trust law will appreciate that.

Legislation provides for a minimum level of indexation that applies to certain pensions. Currently, schemes must increase defined-benefit pensions that are in payment and were accrued between April 1997 and March 2006 by inflation capped at 5%. Pensions accrued from April 2006 onwards must be increased by inflation capped at 2.5%. The exact measure of inflation is not defined in legislation. It is for the Secretary of State to make a judgment each year on the measure to be used from those available.

The rules of an occupational pension scheme may make more generous provision than is required in legislation, either regarding pre-1997 accruals or providing for increases above the level of the statutory minimum. However, these are matters for schemes and the trustees; the scheme will have met its obligations under pension law by paying the statutory minimum.

I understand that the APS rules provide for the rate of increase to be the same as those specified in orders issued under section 59 of the Social Security Pensions Act 1975, which provides for public sector pension increases. Every year, public service pension increases are set out in an order issued by Treasury Ministers under section 59, which requires the Treasury to provide the same level of increase as the additional state pension that is set out in the social security benefits uprating order made by the Secretary of State under the Social Security Administration Act 1992.

The legislation, however, does not specify a particular index as the appropriate measure of price increases. The increase in the general level of prices has always been a matter for the Secretary of State to decide every year, and to help him make that decision he will look at the various indices of price increases. However, he only has to choose a suitable index—he does not have to choose the index that gives the highest possible increase.

In the past, the Government used the retail prices index as the measure of inflation. However, as the hon. Member for Stretford and Urmston has said, in 2010 the Government decided that the consumer prices index is a more appropriate measure of changes in the cost of living than the RPI for public service pensions, certain state pensions and benefits, and the statutory minimum increases for occupational pensions. Therefore, if the Secretary of State decides to use CPI as the measure of the general increase in prices, as is currently the case and has been since 2010, any scheme whose rules required increases under section 59 would find itself making increases on the same basis. I must emphasise that any payments in addition to that level will depend on scheme rules and the powers available to the trustees.