British Airways (Pensions Uprating)

Shailesh Vara Excerpts

Monday 14th September 2015 Commons Chamber

[The Parliamentary Under-Secretary of State for Work and Pensions (Mr Shailesh Vara)]

May I start by congratulating the hon. Member for Stretford and Urmston (Kate Green) on her promotion to the shadow Cabinet, which I am sure will bring her much excitement, as well as much busyness? I also congratulate her on securing this debate. It is clear from this evening’s turnout, on both sides of the political divide, that this is certainly a popular issue, and one that affects many people, and therefore many Members of Parliament, in a wide variety of constituencies.

I trust that the hon. Lady, and colleagues throughout the Chamber, will appreciate that it is not appropriate for a Minister to comment on the running of individual schemes or individual trustee decisions. Moreover, I hope she will appreciate that it is not appropriate for me to comment on matters that are subject to ongoing legal proceedings, as is the case here. She will be aware, as will other Members, that the case brought by British Airways against the trustees is scheduled for a hearing for 25 days in February next year.

[Kate Green]

As I explained, there are two separate matters. I am not discussing the matter that is before the courts—it would be wholly inappropriate to do so in this House tonight—but raising a separate matter that is not the subject of litigation.

[Mr Vara]

The trust and British Airways—the whole organisation—have been the hon. Lady’s subject in this debate. Both are taking part in a debate concerning the trust that was originally set up in 1948. I think it is inappropriate to comment, because there is a huge overlap. She has been in the House for long enough to know, as have other Members, that in such a situation where there is pending litigation it is inappropriate and wrong for Ministers to comment. However, I can speak in a general way and, I hope, address some of the issues she has raised.

[Dr Tania Mathias (Twickenham) (Con)]

I understand that the Minister is unable to comment directly, but does he accept that the High Court has described BA’s behaviour as entirely unrealistic and unreasonable?

[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.

[James Berry (Kingston and Surbiton) (Con)]

Will the Minister give way?

[Mr Vara]

I will, but it will have to be brief and it will have to be the last intervention.

[James Berry]

Does the Minister agree that, while there is little the Government can do in a private trust matter that is currently before the High Court, there is much that British Airways could do for its 28,000 pensioners on the APS scheme, including my constituents, by facing up to either the letter or the spirit of its responsibilities?

[Mr Vara]

I am sure that British Airways is keeping a watchful eye on the Chamber and has noted the presence of not only those who have had the opportunity to speak, but the many others who support them.

Having explained the switch to CPI, I would like to return to the role of trustees in running pension schemes, including setting pension increases. I have explained that any increases above the statutory minimum are a matter for scheme rules and the trustees. In some cases, the increases will be at the discretion of the trustees; in others, the rate will be written into the rules. The House will appreciate, however, that in view of the issues in the ongoing High Court proceedings, I cannot comment on either the ambit or use of powers by the APS trustees.

Trustees of pension schemes are the same as those of any other trust, and much of what they do is governed by trust law. They have to act in line with the trust deed and scheme rules and they have to act impartially, prudently, responsibly and honestly, and in the best interests of beneficiaries. Those obligations apply regardless of whether trustees are nominated by the employer or by members. That means that trustees may have a potential conflict of interest, and the Pensions Regulator issues guidance on how trustees should manage them should they arise.

Trustees are also required, under pensions legislation, to undertake certain actions to ensure that the scheme is funded to meet its liabilities and that it can pay the right amount of benefits to the right people at the right time. Having set those parameters, the Government do not interfere in the running of individual schemes. Regulation of occupational schemes is undertaken by the Pensions Regulator. If it appears that trustees are not carrying out their duties correctly, the regulator may intervene. Alternatively, members may have recourse to the pensions ombudsman or the courts, which is the route being taken at present.

However, another party is involved: the sponsoring employer. The employer is ultimately responsible for putting enough money into the scheme to pay the benefits due under its rules, which is why it is essential for trustees and sponsoring employers to work together when agreeing the level of employer contributions—even more so if the scheme is in deficit and the employer has to pay in extra contributions to make good the shortfall. Inevitably, employers and trustees sometimes cannot resolve disputes, so it falls to the courts to determine the outcome. Sadly, that is the case here.

[Kate Green]

Will the Minister comment on the appropriate balance between the responsibility to the interests of the company and the trustees’ fiduciary responsibility to scheme members?

[Mr Vara]

It is a complex legal matter. There certainly are responsibilities, but they extend to trying to build a good working relationship with all concerned, as well as relationships that are in law. Having such a working relationship—it is not defined in law, but is common sense—is critical if we are to reach a proper solution. Sadly, that has not worked out in this instance, so we have this 25-day hearing, which is a significant amount of time. It is a very complex case about which much will clearly have to be said in due course. However, much has already been said.

I have but a few seconds in which to speak, so I simply say to the hon. Lady and colleagues that it is good to see so many Members in the Chamber for an Adjournment debate. Given that we were threatened with up to four votes, it is fortunate that we will all be able to get away this side of midnight. I commend the hon. Lady again for raising this matter. We await the result of the court case in due course.

Question put and agreed to.