Digital Equipment Ltd: Pension Scheme

Philippa Whitford Excerpts

Tuesday 17th January 2017 Westminster Hall

[Dr Philippa Whitford (Central Ayrshire) (SNP)]

This is a particular issue for Ayrshire. As my hon. Friend the Member for Ayr, Carrick and Cumnock (Corri Wilson) pointed out, a large Digital site there got taken over by Compaq and then by Hewlett Packard. The problem is that this is not like the BHS scenario—it is not that the company has ceased to exist. The company does exist, but it is choosing not to upgrade these people’s pensions. As was mentioned, under HP, in 15 years, those people have had a miserly two upgrades of their pre-1997 contributions. The problem with that is that their buying power is almost cut in half—as was mentioned, they have lost £24,000 each.

Currently, the guidance basically says that pensionable contributions after 1997 get the consumer prices index rate or 5%, whichever is lower, and those after 2005 get CPI or 2.5%, whichever is lower. All those people want is to change that bit of wording so that everything before 2005 qualifies for 5% or CPI, with 2.5% for everything after. They are talking about CPI, not even RPI, and, as was mentioned, they are not asking for it to be backdated. Their pensions are withering on the vine and, as they get older, they will continue to wither. As the hon. Member for Worthing West (Sir Peter Bottomley) said, it is indeed the older pensioner who will have a larger chunk of pre-1997 pension and therefore find that it does not give them the return they counted on.

HP is not skint. HP is a big company, making a lot of money. It sells a lot of IT in the UK and it accounts for 25% of public IT contracts. Along with other FTSE 100 companies, it pays much more out in dividends to shareholders than to correct its deficits—five times, it is estimated, what it puts in to cover deficits. Perhaps the Government should be looking at that. We hear that defined-benefit pension schemes are struggling because the companies cannot afford to put the money in. If they would be willing to pay 20% into correcting deficits and 80% to shareholders, that seems to me already a pretty generous solution, rather than leaving the pensioners to struggle.

That brings us back to situations we have debated multiple times in the Chamber, such as Equitable Life, the Women Against State Pension Inequality Campaign and BHS. People at the start of their working lives are investing, whether in state or private pensions, and they do so on trust that, when they reach whatever the retirement age is, they will be able to live in dignity. They have taken the trouble to open a pension. We are now making people enrol. What will happen in 20, 30 or 40 years’ time? Will we be discussing auto-enrolment pensions that people were forced into that still do not give a return? It is our role as legislators to ensure that the goalposts are set and dependable so that people who sign up to pensions know what they will get.

To call for pre-1997 contributions to be treated the same as those between 1997 and 2005, without backdating, is a reasonable request from the pensioners. I call on the Minister to respond.

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[Kirsty Blackman (Aberdeen North) (SNP)]

Thank you, Mr McCabe. It is a pleasure to serve under your chairmanship.

I commend my hon. Friend the Member for Ayr, Carrick and Cumnock (Corri Wilson) for securing this important debate, and the HP Pension Association for its work and all it has done to highlight the issue, particularly the indexation of pre-1997 defined-benefit schemes. I am here on behalf of my hon. Friend the Member for Ross, Skye and Lochaber (Ian Blackford), our pensions spokesperson, who unfortunately is in the Chamber and unable to attend. Hon. Members will have to forgive me if I do a bit more reading normal.

On defined-benefit and defined-contribution schemes, my hon. Friend the Member for Central Ayrshire (Dr Whitford) covered the issue of trust nicely. If we expect members of the public to be opted into those schemes, they should expect a reasonable return, and they should have trust that their pension scheme will pay out what it said it would. That is particularly true of young people coming into schemes, with the possibility that the state pension may not kick in at 65 or 67 in the future—it may be 70 by the time I get there. We do not know what the state pension age will be at that stage. We need to ensure that people pay into private pensions, so we need to keep up the level of trust in private pension schemes, which has been eroded in recent years.

The UK Government recognise that it is important that the state pension keeps up with inflation. That is why they have committed to the triple lock, and there has been support for that from throughout the House. However, it is not right that we have that for the state pension, but elsewhere there is effectively, if not an ability to dodge that, then almost a loophole. There is a gap, with a lack of legislation committing organisations to sticking to that, particularly in relation to the pre-1997 situation.

Inflation is important. If a pension scheme is not keeping up with inflation, things are less affordable, so pensioners cannot support their retirement in the ways they expected. It is therefore key that the term “inflation” is used, and that we look at that rather than at a certain defined percentage increase.

On the pre-1997 rights and the estimated 3,500 pensioners in the HP pension scheme, as has been said already, according to the HP Pension Association the buying power of their pensions has diminished by almost 50%. That has cost each pensioner an average of £24,000 in cost of living increases compared with those whose contributions were made post-1997.

The HP Pension Association estimates that the average pension paid to Digital pensioners in 2002 was £6,008 per year. If that had kept up with inflation it would now be £9,070 per year—a difference of £3,000 per annum. That is a significant amount of money that people do not have to spend, and it means that people do not have the retirement that they expected. If Brexit causes a period of rising inflation—the current situation has happened over a period of relatively low inflation—the problem will be compounded even further, and it will be even more difficult for people to survive and have the quality of life they expected from their pensions.

Data from the Office for National Statistics occupational pension schemes survey showed that 5.2 million pensioners were in receipt of pensions with pre-1997 rights, of whom 400,000 were not receiving inflationary increases. Some 40% of those with pre-1997 accrued rights received increases of 2% or more, which was down from 85% a year earlier. There has been a significant change, possibly because companies are seeing that they do not have to pay extra. I therefore think it would be sensible for the Government to consider looking at the issue. I understand that there is going to be a Green Paper, in which I hope the Government will touch on it.

[Dr Philippa Whitford]

Does my hon. Friend agree that it is also outrageous that Hewlett Packard pays cost of living rises to its pensioners in Europe but not those here? That shows that this is totally related to the loophole in the UK guidance.

[Kirsty Blackman]

That is a real discrepancy, and it shows that those payments are affordable. Hewlett Packard can afford to pay the increases if it is doing so in other places. The UK Government have a responsibility to consider that and see what changes they can make.

We are all aware of the widely reported challenges that defined-benefit schemes are facing, including from increased life expectancy—companies did not expect to have to pay out such amounts of money for such a long period of time—and the impact of declining yields, while the increase in many schemes’ deficits has been highlighted in the past. The UK Government and Parliament have discussed changes to the rules that govern those pension schemes and to uplifts, but we do not want a situation in which we are putting the schemes before the people. We need people’s rights to be protected and the schemes to continue to be affordable. It is important that we take the pensioners into account first.

My hon. Friend the Member for Ross, Skye and Lochaber tells me that the Government’s Green Paper will offer an opportunity to examine this issue. He asked me, on behalf of the Scottish National party, to commit to working constructively with the Minister, to see whether we could find an affordable way to offer protection to those with pensions with pre-1997 rights. We are keen to have that constructive conversation, and my hon. Friend, who is our pensions spokesperson, would be keen to go ahead on that basis.

As has been said, in the case of the Digital pensioners we are talking about the difference between pre-1997 and post-1997 contributions. The Government could specifically consider that in their Green Paper. Many recent debates have focused on reducing the statutory minimum contribution requirements, and as I have said, we need to make sure that do not further erode those requirements and that we put pensioners first.

This is the kind of issue that ought to be looked at by a pensions and savings commission. The SNP has called for that before and will continue to do so, because this issue will not go away. Pensions will be ever-increasing in importance, as both inflation and life expectancy increase and as possible future changes to the state pension come through. It is now time for a pensions and savings commission to go ahead. That would benefit not only the pensioners in the Digital scheme but pensioners in all schemes and in no scheme. I appreciate the Minister taking the time to listen to the debate, and I again thank my hon. Friend the Member for Ayr, Carrick and Cumnock for bringing the debate to the House.

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[Alex Cunningham]

I certainly wonder the same thing; I have something to say to the Minister specifically on that—not about my personal choices or the hon. Gentleman’s, but about the Government’s.

Hewlett Packard can hide behind the law, and has for years, but that does not mean that what it is doing is right. When we—a group of north-east England MPs—meet representatives from Hewlett Packard a week on Monday, I intend to challenge them specifically on the decision. Despite being a large company with a substantial UK turnover, it is clearly shirking its responsibility to ensure that people who worked for a company that it took over receive the same level of support as before. Another parallel between this case and the plight of the WASPI women is that there has been no real opportunity for the people affected to make up for the shortfall in the value of their pension.

How has Hewlett Packard dealt with other pensioners in its group? Much, much better. Pensioners in all of Hewlett Packard’s European subsidiaries, except in the UK, have received regular cost of living increases. This is a case not of a business being unable to increase pensions in line with the cost of living, but of a large international corporation using a loophole in UK legislation to give it a window to not fulfil what is a moral duty. I wonder what its problem is with treating its British pensioners the same as others.

As we have heard, Hewlett Packard is not a struggling business that cannot make ends meet. It is actually the Government's largest IT supplier, and makes sales of more than a £l billion a year to the Government alone. It is a company that, in 2015, had revenues of $139 billion—not million—and profits of $7 billion. The UK Government spent £1.2 billion with the company in 2014-15, which was 25% of Hewlett Packard’s British turnover. Its highest-paid UK director received £1.64 million in 2014 and £920,000 in 2015. It would cost that company about half the cash paid to that one UK director to pay a cost of living increase this year—half the cash that one person earned in wages last year.

The pensioners affected served their time working for HP and the companies it took over. They thought they were safe in the knowledge that they had a pension and were doing everything they were supposed to. I believe the Minister should put pressure on Hewlett Packard, as I will a week on Monday, to fulfil its moral responsibility, although not a legal one, to ensure that those workers are treated fairly in retirement.

Are the Government really content with doing more than £1 billion-worth of business a year with a company that has cocked a snook at this group of British pensioners? I hope the Minister will agree that even though companies are not legally required to pay annual cost of living increases in line with inflation for workers who made contributions prior to 1997, it is a scandal that there are thousands of pensioners in this country right now whose pensions’ value has dropped significantly, and who are probably now relying on social security benefits to get by.

[Dr Philippa Whitford]

As the hon. Gentleman has pointed out, this is not a legal failure of Hewlett Packard but a moral one. Does the responsibility not therefore lie in this place to ensure that the law and guidance are very clear? It is our job to protect the pensioners.

[Alex Cunningham]

I certainly agree with that. Dealing with the situation retrospectively is extremely difficult, and I do not think that is possible, but we have various Green Papers coming through the system in the near future, and I hope the Minister is listening carefully about the problems we have seen. There are so many schemes out there, and we have schemes that are not operating effectively for the people who have paid into them, whether they are turkey sandwich makers or whoever.

As I said, some of the people affected may be relying on state social security. Why is the British taxpayer having to foot that social security bill, while the Government are handing out such lucrative contracts to a company that makes vast profits from them? Clearly we need to ensure that legislation will never again allow a company to shirk its responsibilities, and I would welcome the Minister’s view on that. I hope he will also take action to resolve this injustice by sending a direct message to Hewlett Packard that if it can afford to pay cost of living increases to pensioners in other European countries, it can pay the same increase to pensioners in the UK.

[The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)]

It is a pleasure to serve under your chairmanship, Mr McCabe. I congratulate the hon. Member for Ayr, Carrick and Cumnock (Corri Wilson) on securing this debate and am grateful for everybody’s contributions. I quite understand that the hon. Member for Ross, Skye and Lochaber (Ian Blackford), who is the SNP’s spokesman on this issue, is probably on Front-Bench duty in the Chamber at the moment. I always listen to him very carefully, as I did to the hon. Member for Aberdeen North (Kirsty Blackman), who eloquently stood in for him.

This debate is about making retrospective changes to pension legislation. Doing so, we contend, would have significant financial implications for the schemes involved. I read in preparing for this debate the information provided by the HPPA, which has been used by Opposition Members. It is a very well argued paper, but I must say that I picked up one inconsistency in it. The briefing paper says, as indeed Opposition Members who have spoken do, that the effects of making these changes retrospectively would be minimal. As far as I can see, a few schemes would fit into this, but I see no evidence from any of the figures that the effects would be minimal.

I intend to do some further work and would be grateful for further data, to assess what the actual cost would be. I have not seen anything in the information provided. That is not a criticism of the general information at all; these things are just very difficult to work out. Of course, expressions such as “minimal” or “a lot” can mean different things to different people. I am not trying any political tricks or pretending something is the case that is not, but I do not know, for example, what it would cost Hewlett Packard to make this change.

The Government have a broad principle in legislation, which I think is generally fair, of not imposing such retrospective changes, because of uncertainty. There is no doubt that this kind of change—this is not the only one we are lobbied about—will place unexpected and significant costs on employers. We all know that in the defined benefit world, schemes and businesses are at risk at all times because of pensions. It is part of our whole policy, and of the policy of Governments of any political party, to try to bring some stability to defined benefit schemes, which involves considering the interests of employees and pensioners and of the sponsoring employers. However, I accept that Hewlett Packard is a very substantial company—a point made clear by all speakers.

[Dr Philippa Whitford]

That is one of the points—Hewlett Packard could carry this on its shoulders an awful lot more easily than individual pensioners. Frankly, it is individual pensioners who are facing retrospective changes. They think they are signing up to and investing in a secure retirement, but when they get there, they find that it has disappeared.

[Richard Harrington]

I fully accept that point. However, what matters to individual pensioners is quite clearly the amount of money that matters to them, but as far as a company is concerned—be it Hewlett Packard, which I accept is very substantial, or a small company—it may be a very significant amount of money. If there were to be legislation, it would have to cover all of them, to be reasonable. No Government could select one company and not another one because it is one of the world’s biggest companies, but I take the hon. Lady’s point.

Normally it is not appropriate or right for Ministers to talk about individual companies’ schemes, so I will try to circumvent that as much as I can. I have listened carefully to what has been said. I listen very carefully to what the hon. Member for Stockton North (Alex Cunningham), Her Majesty’s loyal Opposition spokesman on pensions, says, as indeed I do to the SNP’s spokesperson. Like the hon. Member for Stockton North, I was not aware of this issue until it was brought to my attention quite recently. I therefore cannot say that I have considered this for weeks or months, but it is important. I will come on to the Green Paper in a moment.

I strongly believe, as I am sure hon. Members in this Parliament or indeed any others do, that employers should stand by their pension promises unless there is very good reason not to and that schemes should have to act within the law. It has been accepted in this debate that the legal position is clear: pensions accrued after 1997 have a level of inflation protection, and pensions accrued pre-1997 have indexation requirements only in relation to certain contracting-out arrangements, but not generally. In fact, the hon. Member for Ayr, Carrick and Cumnock confirmed that the company had broken no law.

The argument seems to be that the company has a moral responsibility, but that it is for Government to change the law if the company will not accept that. My hon. Friend the Member for Worthing West (Sir Peter Bottomley) is not in his place; he explained perfectly well why. As he said, it is very legitimate for institutional shareholders, which may include trade unions or pension funds—everything is very circular in pensions, with them owning a lot of shares in it—to use pressure on Hewlett Packard.

The hon. Member for Stockton North represents the former seat of Harold Macmillan. I just read his biography. I look forward to the day when Harold Macmillan’s successor one nation Conservatives take the constituency back, but the hon. Gentleman is doing an excellent job in the interregnum. He said that the fact that the Government spend significant amounts of money with Hewlett Packard could be used as a point of pressure. I cannot really comment on that. I do not have anything in my office, to the best of knowledge and belief, from Hewlett Packard, but I know that the Government have strict rules about things they can and cannot use as investment criteria.

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[Dr Philippa Whitford]

Is that not, therefore, why this issue should go into the Green Paper and we should consider tightening up that loophole in our law? It is not just Hewlett Packard; it is 3M, Chevron, Unisys—it is other big multinational companies who know that here they do not have to do that for the pre-97. As we heard, 90% of them do, but there is obviously a cohort of companies that are just not bothering so we have to tighten it up.

[Richard Harrington]

I agree with the hon. Lady that the company’s obligation appears to be a moral obligation—that point has been made clearly. The Government’s obligation is to pass laws that have to take everybody’s views into consideration. As I have learnt, because it has dominated my life since last July, with pensions and defined-benefits schemes, particularly on the private side, there are the interests of employers and the interests of employees and pensioners. As Governments of all political complexions—all three, if we include the coalition—have done, the Government have had to find ways to take consideration in from the others. I will come to the Green Paper a bit later on.