Pressure grows to provide pre-1997 inflation-proofing

The minister ruled out the possibility of legislating retrospectively against such practices, which are legal, and promised trustees he was attempting to “nudge” the companies towards a better solution.

This comes after campaigners and politicians have urged for an end to be brought to what they describe as age discrimination against older workers, with some saying only legislation will resolve the issue.

The Pensions Regulator estimates that some 21 per cent of schemes have not provided indexation in line with inflation for benefits accrued before 1997.

Members of the Digital Equipment Company pension plan, now a section of the Hewlett Packard Ltd Retirement Benefits Plan, and the 3M Pensions and Life Assurance Scheme, have seen the value of their pre-1997 accrued benefits eroded by inflation.

Employers acted within the law

A 2014 Pensions Ombudsman ruling found that HPE, then known as Hewlett-Packard UK, had exercised its discretion properly as stated in the trust deed, not being required by statute to provide inflation protection for this period.

However, a January Westminster debate instigated by SNP MP Corri Wilson, and the referral of constituents to the minister by Conservative MP Nicky Morgan, have brought the schemes back into the public eye.

Speaking at the Association of Member Nominated Trustees’ spring conference last week, Harrington clarified that the companies had acted according to the law, and legislation looked unlikely.

“The government would find it very hard to retrospectively change the law,” he said, but went on to describe his “nudge” tactics with the sponsoring employers, saying: “I’ve written to the CEOs... to come and see me to explain themselves.”

3M confirmed receipt of a letter inviting the company “to discuss the current system under which companies have discretion in awarding inflationary increases”, and said it was in the process of responding.

HPE declined to comment on when a meeting would take place, but a spokesperson said: “As with any concern raised by our pensioner population, HPE believes that we continue to give this matter due and appropriate consideration... These decisions are reached after careful consideration of a number of factors.”

SNP pushes for legislation

Despite the minister’s statement of intent to trustees at the conference, Labour MP and shadow pensions minister Alex Cunningham doubted its efficacy.

“It is a nonsense that companies, especially those who take over other organisations, can simply cut their pensioners off from any future increases,” he said.

“Ministers can haul as many of them over the coals as they like, but sadly it will only be legislation that will result in them playing fair.”

MP Ian Blackford, the SNP’s spokesperson on pensions, has already attempted to include an amendment referring to the members in the pension schemes bill, currently passing through the House of Commons.

He agreed that retrospective legislation would be difficult, but argued that steps could be taken to protect what remains of the members’ benefits.

“We have to make sure that those who have suffered as a consequence of this do not suffer going forward,” Blackford said.

Hewlett Packard Pensioners Association also doubted Harrington’s ability to negotiate a compromise, with Steve Spillane of the pensioner campaign group disappointed the issue is not mentioned in the Department for Work and Pensions’ recent green paper on defined benefit pensions.

“He seems to very much support the companies and the schemes and doesn’t seem to support the pensioners,” he said.

A briefing paper released in January by the HPPA showed that a typical member’s pre-1997 benefits have lost almost half of their value due to inflation increases.

Meanwhile, 3M announced it has boosted shareholders’ dividends with a share buyback strategy worth $10bn (£8bn).

Trustees of the 3M scheme are understood to have made representations to the sponsor about the issues brought about by the lack of inflation-proofing for pre-1997 benefits.

Legal case would be shaky

Several Employment Tribunal judgments in recent months have tackled questions of alleged age discrimination, most notably finding that transition arrangements for judges’ pensions were discriminatory.

But pensions lawyers remained sceptical that a legal case for discrimination could be made.

Anna Rogers, senior partner at Arc Pensions Law, said the employer’s behaviour would be unlikely to constitute application of a specific age-related condition.

“It’s not just enough that it has an impact on age groups,” she said.