Pre-1997 Pensions: Discretionary Increases

Motion made, and Question proposed, That this House do now adjourn.—(Jade Botterill.)

Across the country, an estimated 1 million pensioners are losing out on pension increases that they ought to be entitled to, simply because the hard shift that they put in to pay into their pensions happened to occur before an arbitrary date in a calendar. That is not good enough. I have secured this debate to shed light on the injustice of the lack of statutory increases for pre-1997 defined-benefit pension schemes, and to ask the Minister what the Government are going to do about it.

Prior to 6 April 1997, defined-benefit pension schemes in the UK were not legally required to increase in line with inflation. That oversight left pensioners, who had worked hard for their whole lives to pay into a pension guaranteeing security in retirement, at risk of seeing their hard work outstripped by the rising cost of living, reducing their financial position in retirement.

The Pensions Act 1995 sought to address the problem, introducing statutory limited price indexation, meaning that those pensions were mandated in law to rise as inflation eroded their real value. However, the change applied only to pension contributions made after April 1997. Almost 30 years on, pre-1997 defined-benefit pensions are subject to the same injustice identified and partially resolved by the Government all that time ago. It is up to the trustees of these pre-1997 funds to decide the level of pension increases granted.

I have secured this debate, during which I am aware that a number of right hon. and hon. Members will seek to intervene, to challenge the Government to finish the job, started almost three decades ago, of ensuring that every recipient of a defined-benefit pension scheme has the dignity and security in retirement that they have worked so hard for.

The Pre-97 Pension Justice campaign group of over 400 pensioners, who I pay tribute to for their persistent campaigning on this issue, has informed me of at least 13 companies where this spell of zero increases—effectively real-terms cuts to pensions every year—stretches to a decade or more. Top of the list, sadly, is Nissan, which has not increased these kinds of pensions for a quarter of a century. In those 25 years, the price of goods has almost doubled: the contents of a shopping basket worth £100 in 2001 would now cost £194.

Prior to this 25-year period, the trustees of the Nissan pension had set a precedent that when the pension scheme delivered a surplus, a discretionary increase would be passed on to members. Between 1992 and 2001, when the scheme was in surplus, increases of between 2% and 3% were granted. This pattern was disturbed after 2001, when the scheme went into deficit, but when the scheme returned to a surplus in 2022, the trustees broke with precedent and refused to grant an increase. The same has happened again every year since, which leads the pensioners to fear that there is a new policy by the trustees that no discretionary increases will ever again be handed to the retired Nissan workers holding these pensions.

I will give way to the right hon. Member for New Forest East (Sir Julian Lewis) first.

The hon. Gentleman is making an excellent presentation. Rather curiously, up until 2023, ExxonMobil pensioners got automatically indexed uplifts to their pensions, but for some reason from that date onwards, the company changed its policy and now they are not getting the discretionary uplift. The trustees there say that they have no power and that it is up to the company to decide whether this discretionary uplift occurs. Is one way forward perhaps to ask the Minister to give an undertaking that the trustees should have the power to award such discretionary uplifts linked to indexation?

I thank the right hon. Gentleman for drawing attention to that particular anomaly.

I see that my hon. Friend and constituency neighbour wishes to intervene.

I congratulate my hon. Friend and constituency neighbour on securing this debate and raising this issue. He will have constituents, as I do, who have been writing to us on this issue and feel very strongly that an injustice has been done.

I have had written communications and met with constituents who used to work alongside my hon. Friend’s constituents at Nissan. Sadly, in the case of Nissan and countless others, trustees have proven themselves not to be accountable enough for the decisions that affect those holding pensions. Evidence submitted to the Pensions Ombudsman shows multiple cases in which trustees have not even considered key factors when deciding discretionary increases.

I congratulate my hon. Friend on securing this debate and on clearly laying out the injustice. Does he have concerns, as I do, that the make-up of the trustee boards means that the company is in control? That is either because the trustees are current employees and their promotion will depend on the company or because they have been appointed specifically by the company. Therefore, even where trustees vote unanimously for a rise, as in the case of 3M, it can be blocked by the company. That has happened for successive years with these companies.

I absolutely share that concern. My understanding from the constituent I met is that Nissan’s trustees include a majority of company appointees who outvote the trustees representing the members of the scheme. Key factors have been ignored, from ignoring inflation to overlooking member contributions. For that reason, I believe that statutory intervention is urgently required.

My hon. Friend is making an excellent speech, and I congratulate him on securing today’s debate. Has he noticed in his work on this issue that in some cases, some international companies are paying inflationary increases in other jurisdictions where they operate, but not in the UK? There have been a number of instances of that in my area, where pensioners from Berkshire in schemes run by international companies have seen exactly that. For example, Irish pensioners or US pensioners get an increase, but not British pensioners.

I thank my hon. Friend for that very useful contribution. I was not aware of that, and I am shocked. It is a further injustice if pensioners in the UK are treated differently from pensioners who worked for the same company in other territories. While the Pensions Ombudsman can establish whether procedure has been followed, only politicians can decide whether outcomes are fair. Will the Minister set out what scope he sees for his role in ensuring fairness over defined benefit pension schemes?

There is another injustice in the way that the Nissan scheme treats its pension holders. Members across the House will be aware that most people take up the option to take a quarter of their pension as a tax-free lump sum. That money is vital to kick-starting retirement, allowing people to pay off their mortgages and other major debts or make major purchases when they first become pensioners. However, the split between pre-1997 and post-1997 pensions means that this scheme, which should be hugely beneficial for those retiring, can be and is being used against them.

The Nissan pension scheme has been paying out its lump sums from those parts of people’s pension funds where the payments would have increased with inflation and leaving in their pension pot the pre-1997 part where the benefits will not track inflation. The impact of that means that, once a lump sum has been taken, the parts of the pension that are left will receive lower or no annual increases. That is clearly unjust.

Worst of all, this change was not even directly communicated with pension holders. My constituents knew about what is frankly an accounting trick only as they noticed their pension increasing by less than anticipated over the years. Because of that, I hope the Minister is able to set out what the Government’s position is on which part of these kinds of pensions should be paid out as a lump sum. Will he work to protect pensioners from quirks of sum calculation being used to deny them the increases that they need to keep up with the change in the cost of living?

I congratulate the hon. Member for North Durham (Luke Akehurst) on his excellent speech and on securing this debate, and all those who have participated in it. I thank the Minister for allowing me a few words.

On your behalf, Madam Deputy Speaker, I will mention your constituent Steve Mawby, because he has been a key campaigner in this important and very difficult area. I first got involved in it before I became a Member of Parliament in 2007, and I pay particular tribute to the late Roy Harries and Les Collard, because they brought to my attention the injustice that had been perpetrated on older pensioners by the Special Metals Wiggin pension fund. Hundreds of people were affected by that, and, alas, many of them are now dead. They were almost invariably widows, who were left receiving half of a much-diminished pension. These pensioners have not received a single penny in top-up payments since the legislation kicked in, because the company’s trustees have decided not to pay any discretionary bonuses at any point. The result is that those pensioners’ incomes are 55% lower than they would have been, and, for widows, half of that. It is an absolute outrage and a great historical injustice, and as the hon. Member says, the fact that an injustice occurred in the past does not mean that it is not important to address it now.

Of course, there was a clear blunder in the legislation. I have raised this issue in the House over the years, and it is a matter of great embarrassment that previous Conservative Administrations and the coalition Government did not address it, but there is now the opportunity to do so. On the Special Metals Wiggin pension fund, I recognise that the trustees are often directly or indirectly controlled by the company, regardless of whether they are formally independent. The company has not paid any bonuses or top-ups, and it is now owned by a large American company, Precision Castparts Corp., which is itself owned by Warren Buffett and Berkshire Hathaway. I have written to Buffett, who has said that he is not willing to help either. It is a source of great sadness to me that even such a great philanthropist and entrepreneur such should have failed to do so.