Pension Schemes

– in the House of Commons at 1:28 pm on 2 May 2024.

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[Relevant document: Third Report of the Work and Pensions Committee, Defined benefit pension schemes, HC144.]

Photo of Alistair Carmichael Alistair Carmichael Liberal Democrat Spokesperson (Home Affairs), Liberal Democrat Spokesperson (Northern Ireland), Liberal Democrat Spokesperson (Justice) 1:30, 2 May 2024

I beg to move,

That this House
has considered pension schemes.

I am grateful to the Backbench Business Committee for allowing time for this debate. I last spoke about this issue in a half-hour debate in Westminster Hall on 17 January, and there have since been a number of significant developments, not least the third report of the Work and Pensions Committee, which is a good and substantial piece of work. I am delighted to see its Chair, Sir Stephen Timms, in his place, and I will touch on the report towards the end of my comments.

Events have unfolded for the various pension schemes over the last few months, and what I spoke about in January as being particularly pertinent to the beneficiaries of the defined benefit schemes at BP and Shell has begun to look more like a wider course of conduct. There are significant developments under way, not least the Government’s recent consultations, which could significantly shape the way in which defined benefit pension schemes treat their beneficiaries in the future.

Although I initially thought that I was dealing with a couple of oil companies, I now see that it is a range of different companies. Yesterday I read an alarming brief from the pensioners of Hewlett-Packard. It is pretty clear that, as this area of pension policy develops, an ever larger number of large corporates will take the same path as BP and Shell. Ultimately, it will be our constituents, as beneficiaries, who lose out if we get it wrong and if these companies are allowed to do as they wish, rather than as they ought, on the position of their pensioners.

Photo of Julian Lewis Julian Lewis Chair, Intelligence and Security Committee of Parliament

I am grateful to the right hon. Gentleman for securing this debate. I have been contacted by three retired members of ExxonMobil, which has a very large refinery in my constituency. I was reluctant to name the firm because I have not had a chance to ask for its side of the story, but the three letters tell me that exactly the same thing has been happening. Those three people were given no discretionary rise this January, and it was then modestly reinstated after protests were made. There is clearly some sort of co-ordinated effort, and not in a good way, exactly as the right hon. Gentleman describes

Photo of Alistair Carmichael Alistair Carmichael Liberal Democrat Spokesperson (Home Affairs), Liberal Democrat Spokesperson (Northern Ireland), Liberal Democrat Spokesperson (Justice)

It pains me to say it, but I think the right hon. Gentleman is absolutely right. What might have started with the oil and gas companies is clearly going much wider.

I should declare an interest, as I hope to be the beneficiary of a defined benefit pension, if I live that long, having been in the House before the move to career average earnings in 2011.

I will not rehearse what I said about the decision of BP, Shell and others not to pay a discretionary increase, which mattered significantly to their pensioners at a time when inflation was running north of 11%. However, it is worth reminding the House that a fundamental point of fairness is at stake here. When one is past retirement age, one no longer has the choices one has when one is of working age. If someone in employment is unhappy with the money they get for the work they do, they can look around and find another job, or they may choose to retrain and do something else more profitable. Once someone is of retirement age, they no longer have that choice and flexibility, which is why it has long been established as a matter of public policy that the beneficiaries of pension schemes require protection. After all, this is simply deferred income, with our being paid later, after we have stopped working, for the service we have done. It is a fundamental aspect of that protection that it should take as its starting point the undertakings that were given.

At BP and Shell, and I do not doubt ExxonMobil, people were given vigorous encouragement to join pension schemes and invest in them. They were given undertakings at the time that one advantage of a big pension scheme at a company such as that was that they would later in life have an income that was protected against inflation. So a question of good faith is at play here.

I have no doubt that for many of the big corporates, the BPs, Shells, Hewlett-Packards and so on, the possibility of paying money to those who are no longer economically active and contributing to their business is tiresome and inconvenient. I never cease to be amazed by the extent to which those at the top of these big corporates seem to think that somehow the corporates are as big as they are simply because of the role that they have played. They do not seem to understand that they are the inheritors of businesses that were built by others, who are now among those who would be the pension beneficiaries. If one is to stand on the shoulders of others, it is always good to respect the fact that one enjoys the view one has because of the shoulders on which one stands. I am sorry to say that that seems to have been forgotten in the boardrooms of too many of our large corporates.

I have expressed these concerns about BP, in particular, before. I remind the House that I have a large number of BP pensioners in my constituency, because for many years BP operated the oil terminal at Sullom Voe. It was a good employer and we valued its presence in the community for many decades. I am concerned now to see that BP pension fund trustees with a collective 94 years of membership of the fund have been replaced with four with precious little involvement, two of whom are citizens of the United States. Since we last debated this issue, both Shell and BP have again refused any discretionary increase to their beneficiaries—in essence, they are doubling down.

The briefing I have received from the Shell Pensions Group is of particular concern. As it is crafted succinctly and concisely, I shall, with your indulgence, Madam Deputy Speaker, read it into the record. It says:

“Shell has imposed this benefits cut upon its pensioners during a period when:

the Fund was in healthy surplus and well able to afford full cost of living increases without call upon Shell’s sponsor covenant;
and

Shell, its shareholders and senior executives benefited hugely from the same energy crisis that was already causing their pensioners extremely high rises in their cost of living.”

The Shell Pensions Group has done considerable and detailed research on that point. From the actuarial reports and the scheme’s accounts, it concludes that

“during the same period, instead of a balanced approach using about 25% of the surplus (as quoted by Shell as necessary for a full cost of living increase) to the immediate benefit of the 93% of members whose pensions are currently deferred or in payment, the Trustee has largely opted to dissipate the surplus by massively accelerating completion of its Low Reliance (upon Shell) investment transition plan. This fifteen year plan was commenced in 2018, but with the acceleration opportunity provided by the surplus arising from increased bond deals, it was almost fully completed in 2022.”

That is where the money that could have funded the pension increases has gone. It has gone into accelerating a programme that was supposed to take 15 years and instead has been concluded in four years.

I am afraid to say to the Minister that the Shell Pensions Group also has strong concerns about the consultation that he launched on 24 February, under the heading “Options for Defined Benefit schemes”. It says:

“We are therefore aghast that…the Pension Minister opened a new consultation…with a view to identifying ways of encouraging and enabling sponsors of DB schemes to claw back surpluses. We feel that the foregoing demonstrates that sponsors require no assistance or encouragement in that and on the contrary, stronger measures are necessary to hold the surplus for the benefit of the beneficiaries, particularly in contributory schemes in which they have invested their own money by way of deferred salary and additional voluntary contributions.”

The Select Committee report has given careful consideration to this matter. Along with most of those to whom I speak, I am well pleased with the recommendations of the report in that regard.

BP also continues to double down. There continues to be no formal engagement with the pensioners’ group—what the previous chief executive officer called “the zero- engagement strategy”. I would have loved to have been at BP’s annual general meeting this year; by all accounts, it sounds to have been a heated affair. The analysis published recently in The Times by its financial editor ties in very well what BP is doing with the concerns we should all have about the future direction of travel. In a recent article, the financial editor wrote:

“Everyone at least pays lip service to the notion that meeting pension promises in full is paramount. No surplus should be touched without a meaty asset buffer being built up. No sponsor should be allowed to extract cash without showing a strong covenant—providing reassurance that it will still be around to pick up the pieces if things go wrong.

But even those safeguards aren’t nearly enough to fully protect members, according to a trenchantly argued submission from a ginger group of BP pension fund members, the BP Pensioners Group. Attempts by employers to evade their promises will be “legion” it says;
they will “trim back or remove any benefit possible”;
they will “abuse loopholes” in the rules to maximise their clawbacks. They will push hard to minimise what members should “reasonably expect”.

It also warned that the prospect of executive bonuses being fattened up by success in grabbing back surpluses will be far more potent in driving company behaviour than any residual feeling of responsibility to ensure schemes pay every last penny of promised pensions. The message is that it could all end up in an unseemly scramble.”

The article continues:

“The bitter dispute with BP is just “a foretaste” of how relations between many other DB pension fund members and their former employers are going to sour if the surplus-grabbing reforms are pushed through without proper safeguards. The old world is dead.”

That sums up very well the tension between surplus clawback and the need to honour the commitments that were given to beneficiaries. We see so often this mismatch, which affects the ability of the citizen to take on the big corporate, or the big public body. This is just the private sector version of what happened to the sub-postmasters. The Post Office was big enough, strong enough and well enough connected simply to ignore the sub-postmasters, to lie about them, to straight-bat their concerns, and to deny what was obvious to everyone until they could no longer manage to do so.

What is the agenda here, and ultimately who will be the winners and the losers? It is pretty obvious that the pensioners will not be the winners. We should consider the reputational damage that the issue is doing to BP and Shell. Obviously, any oil and gas company these days has to be a fairly thick-skinned corporate entity, but still I ask myself why they simply refuse to engage. Why are they denying the very obvious and clear justice of the case being put forward by their own pensioners groups? I find it difficult to see any explanation other than that the funds are being fattened up before being hived off to insurance companies or others.

The TimesThe Thunderer—is not the only news outlet to have reported on BP pensions recently. On 29 March 2024, the PR Newswire reported a case in Houston, Texas, in which the judge told BP that it must reform its pension plan, following an eight-year legal battle over pension losses. Again, we are dealing with big corporates, which have deep pockets and can see off the attention of the small pension beneficiaries. PR Newswire said:

“A group of Standard Oil of Ohio (Sohio) oil workers received a winning decision…after an eight-year legal battle with BP Corporation North America, Inc. (BP), in a huge victory for oil workers, with a federal judge ruling that BP”— this is worth paying attention to—

“‘committed fraud or similarly inequitable conduct’ in how it announced a pension formula change more than 30 years ago…Federal judge George C. Hanks, Jr., ruled that BP violated the Employee Retirement Income Security Act (ERISA) of 1974 and plaintiffs”— that is, the workers—

“are entitled to appropriate redress by ‘equitable relief.’ The court ruled plaintiffs demonstrated BP committed multiple violations of ERISA in its communications to its employees…The Sohio retirees maintained, since 1989, BP had insisted the new formula would provide benefits as good as or better than the old formula. The judge agreed and found there is a pension shortfall for many.”

It is worth reflecting exactly what the people who took that case were motivated by: the work that they had done for BP. The article continues:

“Fritz Guenther, lead plaintiff, dedicated his work life to BP often in dangerous conditions on the North Slope of Alaska. He worked two weeks on, two weeks off for years relying on BP’s representations regarding his retirement. While he is still healthy, he says many of his colleagues face health issues, while others still have died within the past eight years. The retirees’ legal fight is taking place against a backdrop of a retirement wave nationwide, with the US Census Bureau estimating that one in five Americans will reach the age 65 or older by 2030.”

That was the nature of the commitment that BP employees in America gave to the company, and it is a measure of the moral bankruptcy that appears to be at the heart of that corporate that it could not see that payback was necessary for these people in their retirement.

I will touch briefly on the Work and Pensions Committee report to which I have repaired. I apologise for doing something that I was always told not to do as a law student: I will read from the rubric, rather than the substance of the report. I welcome what the Committee said about scheme surplus and governance. In particular, the executive summary says:

“Many schemes are much closer than they expected to being able to enter a buy-out arrangement with an insurer to secure scheme benefits.”

I touched on that earlier. The Committee was also right to talk about the various reasons why the flexibility would be advantageous to wider interests. There is a balance to be struck between the company, the beneficiary, and the national interest, in relation to the money being available for investment. That balance has to be properly struck, and it will inevitably slew towards the interests of Government and corporate interests, unless the necessary protections are put in place.

The Committee also observed:

“We note the current consultation on the level of funding a scheme would need to have for surplus extraction to be an option. However, strong governance will also be essential. We recommend that DWP should conduct an assessment of the regulatory and governance framework that would be needed to ensure member benefits are safe and take steps to mitigate the risks before proceeding.”

In this brave new world for defined benefit pensions, that is a warning that the Minister and the Government would do well to take onboard. If they do not, I am afraid that the losers at the end of the day will be our constituents, the beneficiaries of such pension schemes. We will look back in years to come, and we will see that the cases of BP, Shell, ExxonMobil, Hewlett-Packard and others are simply the canaries in the coalmine.

Photo of Stephen Timms Stephen Timms Chair, Work and Pensions Committee, Chair, Work and Pensions Committee 1:51, 2 May 2024

I welcome the debate, and congratulate Mr Carmichael on securing it at a time when a lot is happening in pensions policy. I will take advantage of its broad scope to comment on wider issues, as well as picking up on the points that he made. I agree with a great deal of what he said.

Auto-enrolment, which was devised by a Labour Government, legislated for under the coalition, and implemented under subsequent Conservative Governments, has been a huge success in increasing the number of employees saving for a pension, but a lot of challenges remain. Above all, the amounts that people are saving under auto-enrolment are not enough for an adequate retirement income, and if we do not increase pension saving soon, we will have a crisis of inadequate pension incomes before very long. The gender pension gap remains much too big. Pension saving among self-employed people, to whom auto-enrolment does not apply, has plummeted.

The Chancellor is rightly looking at how he can boost investment in the UK economy from pension funds, but UK pension funds, for understandable reasons, some of which the right hon. Member for Orkney and Shetland touched on, have largely withdrawn from investments in companies, as regulation has pushed them to reduce the risks that they face. We must not force those defined benefit funds that are still open and investing to close prematurely.

The right hon. Gentleman highlighted this afternoon, as he has previously—he mentioned his debate in Westminster Hall—that members of some defined benefit pension schemes, such as those of BP and Shell, and I think ExxonMobil, as Sir Julian Lewis pointed out, have in recent years not received the discretionary increases that they used to. We looked at that issue in the Select Committee report on defined benefit pension schemes, which we published on 26 March. We took oral evidence from the BP Pensioner Group, and we also heard from the HP Pension Association—the right hon. Member for Orkney and Shetland also mentioned that company. The association represents people who previously worked for the computer company Digital, which Hewlett-Packard acquired. Much of those people’s working lives was before 1997. There was no general requirement to uprate pensions in payment before 1997, and our witness told us that Hewlett-Packard pensioners had received only three discretionary increases to pre-1997 benefits, amounting to 5% in total, since 2002, which is just over 20 years.

In our report we called for the Pensions Regulator to find out how many schemes had discretionary increases on pre-1997 benefits in their rules and how that discretion has been exercised in recent years. Given recent improvements in scheme funding levels, we also called for DWP to look at

“ways to ensure that scheme members’ reasonable expectations for benefit enhancement are met, particularly where there has been a history of discretionary increases.”

Perhaps the Minister, when he winds up, would comment on whether he will look at the reasonable expectations for benefit enhancements for scheme members with a lot of pre-1997 service, and whether they can be met. The Hewlett-Packard Pension Association is calling for a code of ethical practice to be drawn up between the Pensions Regulator and DWP, particularly on pre-1997 pensions, and for their former employer and its pension trustees to work out a policy for sustainable future discretionary increases.

Photo of Alistair Carmichael Alistair Carmichael Liberal Democrat Spokesperson (Home Affairs), Liberal Democrat Spokesperson (Northern Ireland), Liberal Democrat Spokesperson (Justice)

I am grateful to the right hon. Gentleman for touching on an area that I should perhaps have given more attention to. The most important protection we can give the beneficiaries is through ensuring that there are independent trustees, and that the office of trustee cannot be manipulated by the company. Does the Select Committee have any proposals for improvement in that regard?

Photo of Stephen Timms Stephen Timms Chair, Work and Pensions Committee, Chair, Work and Pensions Committee

The right hon. Gentleman is quite right. We have noted a bit of a move towards sole trustees in a number of cases, which clearly gives rise to concerns about how one person can represent the interests of the members of a pension scheme. We are reflecting on that in our work, but one of the members of the Hewlett-Packard scheme wrote to me this week—he may well also have written to other Members—about

“the further fear and despair they are now feeling as it dawns upon them that their company and pension scheme trustees are meanwhile preparing plans to derisk by transferring their Pensioner responsibilities to an Insurance Company”— something the right hon. Gentleman touched on. That transfer will quite possibly mean

“no subsequent possibility ever for pre-1997 increases.”

He calls that “a frightening prospect”, and it is hard to disagree.

The Committee also looked at concerns about the new defined benefit funding regime to be introduced for scheme valuations from September. We noted that the regime had been developed

“in a different era when the vast majority of DB schemes were in deficit and amidst concern that employers were seeking to evade their responsibility to underfunded schemes.”

There have been big changes since then, especially in the wake of the liability-driven investment crisis following the Budget of 18 months or so ago. In particular, there have been significant improvements in scheme funding, but the principles of the new regime have not been changed. Schemes are expected to target a position of low dependency on the sponsoring employer, meaning low-investment risk at the point of significant maturity. That has promoted concerns that the funding code will, when introduced, force more unnecessary de-risking, particularly among open schemes, as well as among those that are closed but have long time horizons, which would increase costs to employers and result in premature closure.

We said that the DWP and the Pensions Regulator needed

“to act urgently to ensure they do not inadvertently finish off what few open schemes remain by further increasing the risk aversion”.

In a letter to the Committee on 18 December, the Minister told us that both the Department and the Pensions Regulator were

“acutely aware of the need to take account of the specific needs of open schemes,” and he agreed that

“open schemes should not be forced into an inappropriate de-risking journey.”

We welcomed that assurance, but it needs now to be reflected in the final wording of the funding code and in the regulator’s approach.

The vote in Parliament on the statutory instrument came before the final version of the funding code was published, so Members did not quite know what they were voting for at that point. We recommended that the Department and the Pensions Regulator should work with open schemes to address their concerns, particularly on the employer covenant horizon—the length of time for which they are confident in the sponsoring employer’s willingness and ability to support the scheme—and report back to us on how they will do so before the new funding code is laid before Parliament.

Since our report was published, feedback from schemes suggests that things may not be moving in the right direction. In a consultation response last week, the University Superannuation Scheme—a large and still open scheme—described the regulator’s proposed approach as

“not fit for purpose for open DB schemes”.

In its view, the statement that it will be required to complete under the terms of the new code will demand

“significant…resource for little or no benefit to our members.”

To the USS, and to me, that appears inconsistent with the assurances that open schemes will not be adversely impacted by the new funding regime. The USS adds:

“Not…having had sight of the revised…Funding Code and accompanying covenant guidance has exacerbated” their worries.

I know that the Minister understands these concerns well. Closure of those schemes would reduce pension fund investment in the productive economy at a time when the Chancellor wants—absolutely rightly—to increase investment from pension schemes into the productive economy. Can the Minister tell us when he expects the new funding code to be published, whether he will report back to the Committee before then on how the concerns of open schemes have been addressed, and whether he is open to considering a separate chapter in the funding code, setting out how the code will apply to open schemes?

Let me take a few minutes to talk about what is happening on the defined contribution side of the picture.

Photo of Julian Lewis Julian Lewis Chair, Intelligence and Security Committee of Parliament

I wonder whether the Chair of the Select Committee shares my concern that when those schemes go wrong, it seems to take an interminable time to get any form of resolution. I have in mind a scheme that I am sure he is familiar with: the Atomic Energy Authority Technology pension scheme. The Government gave strong guarantees from the Dispatch Box that transferring into that scheme would give benefits roughly similar to those of remaining in the original Atomic Energy Authority scheme, but that did not happen. I first quoted the concerns of my constituent, Dr Keith Brown, in 2016. The most recent answer that I received to a question on this subject was:

“This is a complex issue requiring further consideration” between the DWP and the Cabinet Office. I first raised the matter in 2016, but the Government are still saying that in 2024.

Photo of Stephen Timms Stephen Timms Chair, Work and Pensions Committee, Chair, Work and Pensions Committee

The right hon. Gentleman makes a very fair point. That is certainly a very long-running case, and the Select Committee has recently been looking at a notable pension scam case—the Norton Motorcycle Company pension schemes, which was a straightforward scam—that has been running for years and years. He is right that we need to find ways to speed up some of these processes, because the victims in these cases have their lives really blighted. We are allowing that blight to last for years and years, and that needs to change.

On the issue of defined-contribution schemes, the Committee published a report in September 2022 on saving for later life, which pointed out that auto-enrolment has been a very big success, doubling the proportion of eligible workers saving in a pension. I applaud the approach now being taken by Uber following the Supreme Court case that it lost, and the recognition agreement that it now has with the GMB trade union. It is now auto-enrolling large numbers of its drivers into a pension scheme, albeit with higher opt-out rates than elsewhere, which is making some real inroads into pension scheme saving in the gig economy. We need much more of that among other gig economy workers. However, many auto-enrolled people are not contributing enough at the moment for an adequate retirement income, and quite a lot of them are probably not aware of that. Contribution rates need to go up.

As such, the Committee recommended that the Government should first implement the recommendations of the 2017 auto-enrolment review: reducing the minimum age for auto-enrolment from 22 to 18, and minimum contributions being paid from the first pound of earnings. Almost all of our witnesses supported those measures, and we welcome Royal Assent being given to the legislation that will implement them. That legislation requires a public consultation on implementation, and for its findings to be reported to Parliament before the regulations are made. However, as yet there has been no consultation, and nor has any date been announced for it, so can the Minister tell us when the Department will be consulting on implementation of those regulations? Will that consultation be launched before the end of this Parliament, and does he still expect—as the Government have long maintained—that those changes will be implemented by the mid-2020s?

We always knew that auto-enrolment would lead to many small pension pots. People change jobs, so they accumulate, on average, 10 pension pots across their working life. By November 2022, there were over 12 million deferred pots under £1,000. The Department for Work and Pensions has proposed automatic default consolidation to deal with small pots, but that will not in itself stop small pots from building up in future. As such, the Department has proposed a lifetime provider model with member choice, so that employees tell their employer which pot to put their contributions into, and a pot for life, so that employees stay in the pension scheme they started out in throughout their working life unless they choose to move.

Consultation responses on those proposals raised some very serious concerns from the TUC, Age UK, and the Pensions and Lifetime Savings Association and the Association of British Insurers—the main industry bodies. Age UK, for example, said that the proposals would be

“highly disruptive and lead to poor outcomes for mass market savers.”

Major concerns raised in the responses include potentially unwinding the consensus on auto-enrolment; that other measures in train, such as pensions dashboards, value for money and consolidation, will reduce the number of small pots anyway and improve value; that the proposals would benefit savers with larger pots, but harm lower-income savers; and that they would increase employers’ costs while entirely removing their role in selecting a pension scheme for their staff.

I have heard time and again, as I am sure the Minister has, how important employers are to trust in pension savings and that employers have delivered in auto-enrolment what we have asked them to deliver. Other such concerns are that these changes would require a new infrastructure, which would be hard to build, as pensions dashboards have certainly proved to be; and that they distract attention from the important effort to increase auto-enrolment contributions over time, which the responses argue—correctly, I think—should be the main focus of changes over the next few years. The Minister will be very familiar with all those concerns. Will he tell us when the Department will publish its response to the lifetime provider model consultation, and does he acknowledge that responses to the consultation so far have indicated very significant risks in the Government’s proposal for rather limited gains?

There is a lot going on in this area. I am very grateful to the right hon. Member for Orkney and Shetland for giving the House the opportunity to reflect on all this at this particular time. There has been some good progress, for example with auto-enrolment, but a lot more work is needed. I look forward to hearing the Minister’s reply.

Photo of Stephen Doughty Stephen Doughty Shadow Minister (Foreign and Commonwealth Affairs and International Development) 2:11, 2 May 2024

It is a pleasure to follow the Chair of the Work and Pensions Committee, my right hon. Friend Sir Stephen Timms, and I thank Mr Carmichael for securing the debate. It gives us a chance to raise a number of issues, and I have listened with particular interest to the remarks about defined-benefit schemes and the recent report of the Select Committee, which is what I want to talk about today.

I speak, as the MP for Cardiff South and Penarth, on behalf of the many individuals affected by the collapse of the Allied Steel and Wire pension fund. That of course affected not just constituents in Cardiff South and Penarth, but people across south Wales and in other locations in the UK. I have regularly met constituents and others affected by that terrible injustice. Over the time I have been in the House, I have heard the passionate way in which they have made their case, which is heart- breaking. They put into a pension scheme expecting a defined benefit after many years of service in a tough industry—steelmaking, which has a proud tradition in my constituency, as it does across south Wales—yet they have not received what they paid in for. That is essentially because the employees were members of the ASW pension plan and the ASW Sheerness Steel Group pension fund, both of which were wound up underfunded.

Those members ended up having to rely on the financial assistance scheme, which, as has been said, provides financial assistance to members of defined-benefit pension schemes who lost all or part of their pension following their scheme coming to an end between 1 January 1997 and 5 April 2005. The arrangements that were made resulted, in theory, in members receiving something broadly equivalent to 90% of the expected pension, which is obviously less than what they expected to receive, but this could be reduced if it was above the FAS cap. Of course, members who had paid in substantial amounts before 5 April 1997 did not receive any index linking, which means that the value of their pension pots has been substantially reduced. Even the funding that went in after that date will not have kept pace with actual inflation, because it was related to the increase of up to a maximum of 2.5%. The net result is that many of them received somewhere between 40% and 50% less than they felt they were entitled to.

Those members, many of whom paid into the schemes in good faith, have often explained to me very clearly how they were originally sold the schemes. They were told it was going to be absolutely solid—as solid as the steel they were making—yet they found themselves in real difficulties in later life. Sadly, many of those members have since passed away, or suffered illness, financial hardship, mental distress and many other issues during that time.

Photo of Christine Jardine Christine Jardine Liberal Democrat Spokesperson (Scotland), Liberal Democrat Spokesperson (Women and Equalities), Liberal Democrat Spokesperson (Cabinet Office)

The hon. Member raises a point that I have been particularly concerned about. Constituents have recently come to me because they are facing problems getting their pension entitlement from Police Scotland, so from a public sector pension. One of the lessons we need to learn from these continual scandals is that we need to act quickly, because the longer we take, the more people lose out, and people pass away and never get the justice they deserve.

Photo of Stephen Doughty Stephen Doughty Shadow Minister (Foreign and Commonwealth Affairs and International Development)

I agree with the hon. Lady. Indeed, that is reflected in what the Committee set out, which I will come to in a moment. Quite understandably, those pensioners have made it clear to me that they see themselves in the ilk of other huge, historic injustices, such as those we have heard about in recent months with the sub-postmasters Horizon scandal and the infected blood scandal. Obviously, the longer it goes on, the more pain and financial and mental distress they endure, and tragically many pass without receiving any of what they were entitled to, and certainly not the full amount.

I have met numerous Pensions Ministers and written to them many times. I have spoken in this House many times and told the stories of these pensioners. I thank shadow Front-Bench colleagues, in particular the acting shadow Secretary of State, my hon. Friend Alison McGovern, and my hon. Friend Vicky Foxcroft, who is on the Front Bench today. I also thank previous shadow Pensions Ministers, including the late Jack Dromey, for all they did to engage with pensioners, but people are still not getting the answers that they rightly expect—I will come on to the response that I have had from the Minister in due course.

Let me turn briefly to the recommendations in the DWP report, which I know the Minister is familiar with. Its 22nd recommendation states:

Financial Assistance Scheme members are likely to have more of their service before 1997, so are particularly likely to be affected by non-indexation of pre-1997 benefits. Any improvements for PPF members should also apply to FAS members.

Given the age of many FAS members, the Government should legislate as a matter of urgency to provide indexation…for pre-1997 rights…The Government should review the Financial Assistance Scheme, including looking at the case for removing other discrepancies in FAS compensation, compared to the PPF”.

Paragraph 156 of the report states:

“Like the Deprived Pensioners’ Association and Prospect, the Pensions Action Group—” which has worked on behalf of these pensioners over many years—

“said that indexation on pre-1997 benefits is its priority. Most FAS members have the majority of their service before 1997 and most were in schemes that provided for indexation of between 3% and 5% on all members’ pensionable service. Non-indexation of benefits…means that the average FAS award (£2,700) is progressively lower than the amount expected from the original pension schemes. Terry Monk said: ‘people should get what they paid for—end of story. If people paid for it, they should get it.’”

That is a sentiment I have heard over and over again from my constituents and others.

As I said, I have engaged with many Pensions Ministers —there have been many over the years while I have been in the House—and I had a letter from the Minister on 18 April regarding those on whose behalf I wrote to him. It said:

“I am aware of, and welcome, the report of the Work and Pensions Select Committee into defined benefit pensions. These are complex matters which require careful consideration. Any solution needs to be balance and take account of the interests of Financial Assistance Scheme members and taxpayers who fund the Scheme. Therefore, I am now actively considering next steps…with an aim to publish our response in early summer.”

Will the Minister meet me, my constituents, and other representatives who have been campaigning on this for so long? Will he give some timeline for when he expects to respond to the Select Committee and the specific points? Will he provide his Department’s estimates of the costs involved, and say how those weigh up in different scenarios? This issue obviously affects thousands of individuals. I have heard different figures quoted at different points for addressing the concerns, and it would be good to understand his independent assessment.

A passionate case has been made by my constituents and those affected. This was a highly publicised scheme. The former ASW site is now under new ownership but it is still at the heart of my constituency and a visible sight in Butetown and Tremorfa. Many of those affected live locally and did not get what they thought they were going to get. That has caused huge distress to them and their families. We need to provide them with some answers, and I urge the Minister to look carefully at the case they have made and at the findings of the Committee.

Photo of Therese Coffey Therese Coffey Conservative, Suffolk Coastal 2:19, 2 May 2024

It is a pleasure to speak in this debate, and I congratulate Mr Carmichael on securing it and the Backbench Business Committee on granting it.

This is an important matter, no matter what age people are. I appreciate that today we are not talking particularly about state pensions, but I call on those on the shadow Front Bench to please desist from this scaremongering about what may be happening with state pensions. All parties have committed to having the triple lock in their election manifestos, and it has worked well. There has been a big uplift in the state pension since 2010. We worked on that with the Liberal Democrats when we were first in coalition and have continued with it, with a couple of exceptional reasons in the pandemic—once when we used primary legislation to ensure that people could get the triple lock, and again when we recognised the unusual situation with covid earnings. We know that pensioners have welcomed the significant increase in their first state pension payment of this tax year, with most of them seeing that significant uplift in the week just gone.

Photo of Stephen Doughty Stephen Doughty Shadow Minister (Foreign and Commonwealth Affairs and International Development)

The former Secretary of State says we should not be scaremongering, but there are some serious concerns. Does she accept that the Pensions Regulator report said that the mini-Budget of the former Prime Minister, Elizabeth Truss, contributed to a £425 billion drop in pension fund assets, which has affected every pensioner and every potential pensioner in this country? Will the former Secretary of State not at least accept some responsibility for that?

Photo of Therese Coffey Therese Coffey Conservative, Suffolk Coastal

I certainly will not accept responsibility for that. I am conscious of the arrangement with the Pension Regulator, but also the situation that happened with liability-driven investments. The Bank of England saw that as a risk in 2018 and did nothing about it. I come back to the fact that the state pension is well trusted and well regarded, and it is scaremongering to suggest anything otherwise.

I am conscious that today we are talking about private pension schemes. In my short time as Secretary of State for Health and Social Care, what came up time and again—this Government addressed it—was the reduction in the lifetime allowance to about £1 million, which the Conservatives had introduced. I appreciate that for many people, it would be a mountain to climb to get to that kind of pension pot, but for doctors, consultants and some nurses, the lifetime allowance was proving a barrier to them continuing to work within the NHS. A sensible approach was taken, and I am pleased we have done that.

One thing that has been constant is the generous tax elements for private pensions. It is why we have had such a successful industry and why there is a difference between us and many other countries around the world in what comes from the state directly and what comes through private pensions. I recognise that the previous Labour Administration put in place the building blocks for auto-enrolment and the creation of the National Employment Savings Trust, and that was a good thing to do. I am pleased that we started that journey just over a decade ago.

Contrary to the predictions, it was good to see how many young people did not opt out. That is a huge success story, and it is why I share with the Chairman of the Select Committee, Sir Stephen Timms, a keenness to make sure we get on with the consultation to which he referred. I am sure the Minister will answer that point. I appreciate that there will always be concerns about the possible impact on jobs. I get it, and it may be that we need a two-stage consultation: one stage about age and one considering a lower earnings level. It would be good to get on, because everybody realises that the sooner people start, the more they benefit. That is an important part of why auto-enrolment has been such a success.

Another recent change in legislation is the creation of collective defined contribution schemes. Clearly, there is still some interest in those, and Royal Mail is potentially closest to starting one. We should see what we can do to advocate for that model for many institutions. This is a brave comment to make in this speech, but I wonder whether Parliament should lead by example and see whether the Members of Parliament pension scheme should move to this approach. I am conscious that the taxpayer pays for our contributions through the Government and so on, and we have an uncertain career path by becoming Members of Parliament, but where something is good enough for others and we are creating legislation for it, we should consider leading by example and giving some impetus to that new legislative vehicle. I may not be popular for saying that, and I am conscious of how some of the issues with the McCloud judgment and similar matters led to a two-tier system, which has now been rectified. However, that scheme undoubtedly need not be as complex.

I am pleased about the changes that happened in the Treasury, responding to calls from Departments such as the DWP, which led to an opening up through the Mansion House reforms of the consolidation of funds and aspects of super-funds. What we need from pension investment is good returns so that our pensioners will be prosperous—that is ultimately what this is about—and we need to galvanise what we are doing to ensure that.

I am not one of those people who believes that we will be retiring at 75 or whatever—far from it. There is a rational end to that approach. It will not necessarily take courage but it will require some imagination, co-ordination and collaboration to ensure that we have sustainable pension outcomes for the future. That is where we can start to learn from other countries. When I was in the Department for Work and Pensions, I was interested in what is done in Japan. Dare I say, if I end up doing another PhD in the future, it will probably be on how pensions are part-funded in Japan, recognising its ageing demographics? We should recognise that that is the situation in our country, too. We should not be all doom and gloom about this issue. We need to innovate, but we can also look at what others have done to address it.

There is another really important thing. I started work in 1997 for a company called Mars Inc. where—it was little known to me; I did not realise how beneficial this was—I was on a final salary defined-benefit pension scheme with zero contribution. I did not have to contribute a penny. Over time, that did not stay affordable for Mars. I had not appreciated that benefit—I think to some extent that is why auto-enrolment is so successful—but in that job I learned the importance of making sure that employers are careful with how they manage pensions on behalf of employees and the role of the trustees.

We can think back to Robert Maxwell raiding pensions. I know that Mars sold a business to his company, and that went wrong in terms of the pensions. People may not be aware that pensions are not included as part of the TUPE process—they are specifically excluded, recognising how they could limit sensible company mergers and acquisitions—but I am conscious of how people may not really think about that until much later in life.

To return to the reforms and why they are necessary, the trustee is so important. I had hoped that we would have a “year of the trustee” campaign. Although being a trustee is an interesting role to have—I admit that I have never been one, although I have expressed interest in the past—it means being heavily involved in regulation. That could be overwhelming at times for people who may want to be a trustee because they believe in the people they work with and those who worked there before them, as well as being mindful of the future, but who are not necessarily well versed in all the ins and outs.

I know that the fiduciary duty is really drummed into trustees. For defined-contribution schemes in particular—where, candidly, there is no expectation of what the outcome will be—the hammering home of that fiduciary duty has led to a low-risk approach, which has been very low-cost but with very low returns. That is not what we should want. No wonder people are buying other homes and becoming landlords: they see a fixed asset, which they know they can sell in the future and on which they can make a reasonable expectation, whereas people putting money into their pension pots have no huge sense of what that could buy them in the future. We have changed the laws so that people do not have to put everything into an annuity, but it still is a matter of concern. I am conscious that there have been issues with the pensions dashboard, and I hope that the Money and Pensions Service will solve that. Perhaps the Minister can update us on progress in that regard. It is vital that people start to look at that now, not just as they are about to retire.

What are the benefits of the reforms, and why should there be sufficient professional advice? Those intermediary advisers often get significant fees, but still recommend that people go for gilts and pretty low returns. There is a different way. I hope that the reforms will start to be taken up by the industry, which asked for them, in order to take full advantage and recognise the issues ahead. We need to see the impact of the changes in legislation and the variety of consultations. We made the changes to improve prosperity for pensioners now and in future. I would be keen to hear from the Minister if there is any news on market trends in that regard. The local government pension scheme should lead by example. The Government have put greater demand on local government through levelling up, but is vital that we see that change.

There is a second part of pension schemes that is worth raising. I wonder whether Members know just how many trillions of assets there are in UK pensions alone. The answer is about £3 trillion. Organisations such as Make My Money Matter are trying to encourage people to use their future pension pot to ensure we have a thriving planet. I do not agree with the divestment approach, but it is important that companies invested in the energy of today are invested in the energy of the future. Without the support of pension funds, we will not get that necessary investment.

Pensions are a superpower for the prosperity of people and the planet. I was pleased when we introduced the regulations on disclosure of alignment to the Paris agreement. I would like to go further and encourage the Secretary of State to bring forward similar regulations to apply to nature. Work has already started—the Task Force on Climate-related Financial Disclosures made it happen for carbon. I think we were the first in the world to do that, by the way. We can do the same for nature. The Taskforce for Nature-related Financial Disclosures is a good comparison. The International Sustainability Standards Board is looking at that, and we are close to getting that outcome. I appreciate that the Minister may not have considered that recently and he may not be able to respond, but I encourage him to do that. We only have a certain amount of time, although I hope that as science allows us to live longer, we will claim our pensions for longer, so we want to ensure a prosperous future.

On the superpower element, I praise Nest, which has done a great job. It was set up just over a decade ago, and now manages a huge amount of money. There is even room for it to expand through consolidation, which the Pension Protection Fund could also look at. Nest is leading by example. As a pension firm that is starting to invest in the energy of the future with a substantial proportion of its funds, rather than rely on gilts and similar, Nest should be truly celebrated.

Although fiduciary duty must be the No. 1 priority, let us try to get more trustees to recognise that they are responsible for ensuring that the returns from DC schemes are as good as the benefits for members of defined benefit schemes. We need to release the market and protect people as we have done. Pensions being a superpower is not necessarily the sexiest thing to say in this Chamber, but it is one of the most important decisions that we have made in legislation in recent years. We need to continue that momentum.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Human Rights), Shadow DUP Spokesperson (Health) 2:34, 2 May 2024

I thank and commend Mr Carmichael for leading today’s debate. I attended his half-hour Westminster Hall debate on this issue and supported him when he outlined his case in the short time he had. He has done exceptionally well today in doing the same thing, but in much more detail.

It is important to discuss pension schemes, and to ensure they are properly understood and regulated. There are still so many people out there who are misinformed, or do not really understand how pensions work or what their purpose is, so I am glad to be able to debate this issue. The Chair of the Work and Pensions Committee, Sir Stephen Timms, referred to auto-enrolment. I want to refer to it, too. The right hon. Member for Orkney and Shetland set out a lot of detail, as did the Chair of the Select Committee and others, referring to a number of companies. Most people will obtain a pension at some stage of their lives and, through employment, will actively pay into it.

One point I would like to make, and which the Chair of the Select Committee referred to, relates to the provision of pensions for our young people and what steps we can take to ensure they understand that provision. This is another issue that I believe should be taught within learning for life and work. It should be in the curriculum and a part of our focus. The right hon. Member for Orkney and Shetland said that he had his first pension at the age of 22. I had my first pension at the age of 18. My mother took me down to John Thompson —he is not here any more—who was the pension man in Ballywalter. I said, “I don’t need one.” He said, “Oh, you do.” And I signed up. Of course, you never say no to your mum. I certainly didn’t and I do not regret that. Over the years, and after taking out other pensions, all of a sudden they are quite valuable and exceptionally good to have. Also when I was an 18-year-old, my mother took me down to the Northern Bank—now Danske Bank —and opened an account for me. She gave me £10 to start the account. Way back in the ’60s, that was quite a lot of money. You could probably have bought a wee car at that time. I am not sure what state the car would have been in, but I think you could have bought one for £10 or thereabouts. The point I am making is that it is important to save and to have a pension.

We ask young people to look to their future and to start to plan, but there is little provision within the education system to teach them about pensions, savings and mortgages, and there should be. I know that that is not the Minister’s direct responsibility, but perhaps he could give some assurance on whether it could become a subject for the curriculum. I have had conversations with my staff on the importance of paying into pensions. My youngest staff member’s response was exactly that. She bought her first house, saving for almost a decade for the deposit and paying thousands of pounds for mortgage advisers, insurance, solicitors fees and lenders fees. Young people are just about surviving to live in the present, but there is now an expectation that they must save in a pension for their futures. The purchase of a house is such a critical factor that a pension often takes second place. What steps can be taken to ease the financial burdens on our young people and enable them to see the benefits of taking advantage of pensions?

I recently asked a parliamentary question on considerations being given to a potential opt-in scheme for young people under the age of 18. There is massive cause for this. Another two girls in my office have been working since the age of 13—part time, obviously, but still working—and so many young people out there are employed from as young as that. Why shouldn’t they reap some sort of benefit from working at that age? I understand the Government are to make a change to the Pensions (Extension of Automatic Enrolment) Act 2023 to enable that to happen in the “mid-2020s”. As we quickly approach that, perhaps the Minister could give an update on the matter and where it stands.

My last point on pensions relates to the WASPI women. This is not the subject of today’s debate, and there will be a debate on it in a fortnight’s time. I secured a debate last month in Westminster Hall on the issue. Although it is not the pension issue for today’s debate, the scale of the issue and its popularity highlights the importance of planning pensions. That is the point I want to refer to. The Minister will be aware that compensation is owed, but, given the nature of today’s debate, let me gently remind him that it is possible for lessons to be learnt. In setting the scene, the right hon. Member for Orkney and Shetland spoke of what had gone wrong and the need to ensure that it would not happen again, and we hope that, as a result of this debate and others, the issue of the WASPI women will never happen again either.

The incentive to save for the future must be there for people of all ages, not just young people but those in their 30s and 40s who voluntarily do not pay into their pensions because they do not think it worth their while, given the current cost of living and the many demands on their purses. It is also worth noting that some employers match employee contributions, while others pay considerably more. The incentive must be there for people to prepare for life after work, and I firmly believe that that should start in the LLW and careers sector of the education system. We should “learn them early”. We should reach young people in the right way and prepare them for the world that is to come, and pensions are clearly a part of that.

Photo of Allan Dorans Allan Dorans Scottish National Party, Ayr, Carrick and Cumnock 2:40, 2 May 2024

I thank Mr Carmichael and the Chair of the Work and Pensions Committee, Sir Stephen Timms, for their work in bringing this important matter to the House.

The right hon. Member for Orkney and Shetland mentioned pension schemes including those of Shell and BP, but I want to focus on the Hewlett Packard Enterprise pension scheme, and a decision that directly affects more than 1,500 people living in my constituency and in neighbouring constituencies. I speak on behalf of my constituent Patricia Kennedy, as well as 9,625 members of the Hewlett Packard Enterprise UK pension scheme, which includes more than 4,000 members of the Hewlett Packard Pension Association. These are people with an average of 20 years’ loyal service, the bulk of it pre-1997. They were promised a good pension. They expected a “fair deal” from a world-leading corporation that they helped to build, but now find themselves left with a “raw deal”. In general, their pensions now have less than 70% of the expected buying power.

In 1977, Digital Equipment Corporation of Massachusetts opened a factory in Ayr. The company, known locally as Digital, was a major boost to the local economy, and, indeed, apart from the Government, was one of the largest employers in Scotland, with a major production facility on the outskirts of Ayr. At the time, the Digital pension scheme was regarded as one of the best in the United Kingdom. Annual increases were discretionary, but pensions more than kept pace with the best available.

In 1998 Digital Equipment merged with Compaq, and in 2001 that organisation, in turn, merged with Hewlett Packard. In 2017 Hewlett Packard split, and Hewlett Packard Enterprise took over responsibility for the Digital pension scheme. Employees of Digital, Compaq and Hewlett Packard joined and paid into the pension scheme in the reasonable expectation that future pension benefits, which would have provided them with a reasonable pension on retirement, would continue to increase in line with the cost of living. Sadly, however, that has not happened. Since Hewlett Packard Enterprise took over the pension scheme there have been only three discretionary increases, of 1% in 2004, 1% in 2008, and 3% in 2022.

Hewlett Packard Enterprise, while presenting itself to its customers and investors as the most ethical company in the world, is taking advantage of the weakness in the UK pension legislation relating to pre-1997 service. That has resulted in a “raw deal” average pension of £9,700, which, even when topped up with the maximum state pension, results in “low income living” as defined by the Government. Regardless of its legality, this practice is heartless, immoral and unethical, and it is absolutely unacceptable from a major global corporation.

By contrast, Hewlett Packard Enterprise has had an global annual net revenue—a profit—of between $50 billion and $120 billion since 2002, totalling around $1.5 trillion. In 2023, Hewlett Packard’s chief executive was paid $1.3 million, a bonus of almost $2 million and $15.7 million in stock options. Shareholders got $1 billion in dividends that year.

If other, far less profitable companies can pay increases to their pensioners, surely Hewlett Packard can as well. We might ask why it does not. The answer is simply that it does not have to. In fact, it does not even have to explain how it comes to the decision that it makes each year. The decision-making process, what factors are considered and how pensioners’ needs are represented all lack transparency, and there is nothing that compels the company to change that. It has made its point for years, and there is a deadlock.

I am a realist. Although I call on the UK Government to put pressure on a US-headquartered corporation, that is unlikely to break the deadlock. However, there is a way forward. On Wednesday 18 October 2023, David Carson, a representative of the Hewlett Packard Pension Association, gave oral evidence to the Work and Pensions Committee on the defined benefits pension schemes inquiry, as was mentioned by the Chair of the Committee. The Hewlett Packard Pension Association also made three written submissions, which feature in the Committee’s final report. The Committee mentioned these oral and written submissions in paragraph 83 of the report, and paragraph 9 of the conclusions. It commented:

“Some pension scheme members are dependent on discretionary increases to ensure their pension payments keep up with the cost of living. Where these have not been awarded the effect has been, over time, to erode their standard of living. This can be particularly the case for those with rights built up before April 1997, when there was no general requirement to index-link pensions in payment.”

The Pensions Regulator should undertake research to find out: how many schemes have provision for discretionary increases on pre-1997 benefits included in their rules; whether the discretion is for the trustees, sponsoring employers or both; the number of years in which schemes have paid discretionary increases on pre-1997 rights; and the number of years in which they have not done so, as well as the reasons for that. As a matter of urgency, I strongly encourage the Pensions Minister, the Government and the Pensions Regulator to complete the research, which I believe will make it undeniably clear that an ethical code of conduct is required to ensure collaboration between companies and trustees on developing policy and strategy for pre-1997 discretionary increases.

Clarification is also needed from the Government on section 221A of the Pensions Act 2004. That section was inserted by paragraph (2) of schedule 10 to the Pension Schemes Act 2021, which states:

“The trustees or managers must determine, and from time to time review and if necessary revise, a strategy for ensuring that pensions and other benefits under the scheme can be provided over the longer term.”

That could be central to breaking the deadlock. If discretionary increases are viewed in the same way as other benefits in a pension scheme, it follows that companies and trustees must work together to devise a strategy for ensuring that pensions and other benefits under a scheme can be provided over the longer term.

We also need the research to be done by the DWP and the Pensions Regulator, a code of ethical conduct to be developed, and clarification from the Government that the intent of the Pension Schemes Act 2021 is that companies and trustees must work together to devise a strategy for ensuring that pensions and other benefits under a scheme, which include discretionary increases, can be provided over the longer term. I appreciate that the Minister may not be able to provide clarification on these matters today, but I would be grateful for a written response in due course.

Finally, although this debate focuses on private pensions, no debate on pensions would be complete without mentioning the greatest ever pension injustice—the 3.8 million WASPI women, including 6,800 in my constituency, who were not informed by successive Governments of changes to the age at which the state pension would be payable. The Government have ignored the plight of these women for nine years.

The Government hoped that the WASPI women would go away, but they have not, although 40,000 are unfortunately dying each year without getting any form of compensation. Some 240,000 have already tragically passed away, including my constituents Margaret Meikle and Morag Syne. The Government must urgently support and progress the private Member’s Bill tabled by my constituency neighbour, my hon. Friend Alan Brown. The Bill had its First Reading earlier this year, and it would require the Secretary of State to publish proposals for a compensation scheme for women born between 6 April 1950 and 5 April 1960 inclusive who have been adversely affected by the increase to the state pension age.

Photo of Vicky Foxcroft Vicky Foxcroft Shadow Minister (Work and Pensions) 2:50, 2 May 2024

I congratulate Mr Carmichael on securing and opening this debate. He has spoken passionately about this subject in the House before, especially in relation to the BP, Shell and other oil and gas schemes, and about the way that decisions are being made because of concerns other than the best interests of scheme members. I admire his knowledge and determination to support those who have been affected by adverse changes to their pension schemes.

My good friend, my hon. Friend Stephen Doughty, passionately raised the case of his constituents who are Allied Steel and Wire pensioners, and he spoke of the need for the Government to carefully consider the Select Committee’s report. I hope that the Minister will meet hon. Members and their constituents, and that he will update hon. Members who have so doughtily put forward their constituents’ cases. I worked as a trade union official in a previous life, and I represented many members in pension disputes, so I have experience of this area.

I thank the Backbench Business Committee for granting this debate, and I thank colleagues for their valuable and insightful contributions. Young people are frequently, quite rightly, advised to start planning for their retirement as early as possible. When people make plans for their future, they do so in good faith. A contract is effectively created between employer, or state, and employee to provide for an income to be paid in later life. Although it would be naive to think that nothing could change during the intervening decades, people make decisions about how they will afford their retirement when they enrol in a pension scheme.

The right hon. Member for Orkney and Shetland has previously spoken in this place about the emotional representations he has received from people affected by the changes to the BP defined benefit scheme. I am sure nobody here could fail to be moved by the words of the dying BP pensioner who was told that his widow will no longer be protected from inflation, despite previous assurances. Pensions are, after all, not only an income while we are alive. They are also a way of providing for loved ones after we are gone.

My Lewisham, Deptford, constituency is not so well known for its oil and gas, but I have a constituent who is affected. When they contacted me last year, my constituent outlined how, in practical terms, BP’s decision to override the recommendations of its pension fund trustees meant that the pensions of some 60,000 individuals in the UK had declined, in real terms, by 11% in just two years. For an individual in their 60s on an average pension, that 11% cut equates to a loss of income of about £60,000 across their retirement. Some 16,000 of the individuals affected are in their 80s and 90s, and it is not a great leap to assume that many may be in poor health and may have faced spiralling energy costs over the last few years. That is just one example of the huge impact that policy changes can have on individuals.

Let me turn to the wider pensions landscape. There are three types of pension in this country: defined benefit, defined contribution and the state pension. All have been touched on at various points during this debate. We have reached something of a critical moment in pensions policy. The last far-reaching review of the UK’s pension system, carried out by the Pensions Commission, reported in 2005. Since then, the UK has weathered a global financial crisis, a pandemic and the highest levels of inflation for almost 40 years. Over the same period, home ownership rates have fallen and there has been a big rise in self-employment, thanks to the gig economy. In short, the way people are—or are not—saving for their retirement has changed, and we need to determine whether the current pensions landscape is still working.

That is why in November my right hon. Friend Rachel Reeves announced a wide-ranging pensions review. Our review will look across the whole sector. It will set out proposals to ensure that individuals get the best possible returns, and will identify the barriers to pension funds investing more in UK productive assets. Perhaps a quick review of the track records of Labour and the Conservatives will provide further evidence of why Labour is best placed to hold that review. Under the last Labour Government, pensioner poverty halved—a million were lifted out of poverty. So how are things going under the Conservatives? On their watch, one in five pensioners now lives in poverty; gas and electricity bills have rocketed; mortgages and rents have gone through the roof, and more older people are renting into retirement; and increasing numbers of pensioners are relying on their hard-earned savings to get by.

Analysis carried out recently by Labour has shown that the state pension is the main source of income for more than 6 million people. Women, over-75s and single pensioners would pay the heaviest price if the Tories cut the state pension to fill the £46 billion tax black hole created by their unfunded proposal to cut national insurance. That would see the pension cut by £96 a week, or pensioners paying more in tax. That is proof that you can’t trust the Tories with the state pension.

In the midst of a cost of living crisis that is hitting pensioners hard, the Government are failing to ensure that families are getting the support that they are entitled to; up to 880,000 eligible pensioners are not claiming pension credit. When we look at various workplace pensions, our analysis shows that average pension pots are £6,300 smaller than they would have been had wages grown at the rate they did under the last Labour Government. A worker on average earnings can expect to have amassed a £70,600 pension pot since 2010. However, if wages during that period had grown at the rate they did under Labour, the same worker would have built up a £76,900 pot.

Working people will feel the cost of Tory chaos for years to come, with the Government’s failure to make work pay wiping thousands of pounds off the value of the average pension pot. All that is before we get to the Government’s broken promises on the triple lock, and the billions that Elizabeth Truss wiped off pension funds with her disastrous mini-Budget. We may not represent the same party, but I hope that the right hon. Member for Orkney and Shetland will agree that older people are paying a heavy economic price for the mess created by the Tories.

The number of people aged over 65 will increase from 11 million to 14.5 million over the next 20 years. We are living longer—one in four babies born today will be around to celebrate their 100th birthday—yet the Centre for Ageing Better says that a financially secure and healthy later life is becoming increasingly unlikely for millions of people.

Labour’s record on pensions is clear. We lifted a million pensioners out of poverty. We introduced pension credit, boosting the incomes of the poorest pensioners, a disproportionate number of whom were women. As my right hon. Friend Sir Stephen Timms rightly pointed out, we created automatic enrolment, which brought 10 million more people into workplace pensions and gave them a level of retirement income they otherwise never would have had. When the Tories broke the triple lock, which has been vital in protecting pensioners’ incomes and providing security, we campaigned against that. Under Labour, the triple lock is safe.

Furthermore, we will never put the nation’s financial stability at risk by playing fast and loose with the economy. We will tackle the cost of living crisis head-on and ensure that individuals have the security they deserve in retirement. We will give future pensioners the ability to prepare for retirement with confidence by creating more better-paid jobs in every part of the country, helping people get into, stay in and get on in work, and championing decent second pensions for all.

Pensioners, along with everyone else in the country, need change. Labour has a plan to grow the economy, put money back in people’s pockets, make work pay and be the party of pensioners again. Although it is not within the Minister’s power to call a general election, perhaps he could have a word with someone who can.

Photo of Paul Maynard Paul Maynard The Parliamentary Under-Secretary of State for Work and Pensions 3:01, 2 May 2024

It is a pleasure to be here today. I thank Mr Carmichael and the Backbench Business Committee for allowing the debate, which is a second outing on the issue within a few months.

We all agree that occupational pensions are crucially important. Many hard-working people across the country depend on their occupational pensions for an income in retirement, having spent years paying into their pension scheme. The right hon. Member for Orkney and Shetland spoke powerfully, once again, about the situation that his constituents face, and he referred to others as well. He spoke powerfully about the situation as he saw it. All of us have constituents who have done the right thing, worked hard and contributed to their occupational pension scheme, so it matters to all of us that they get what they have been promised when it falls due, as set out in the rules of the scheme.

When we last debated the issue, in Westminster Hall in January, I made the point that I would not speak about specific schemes, and I will not do so today. I will comment in more general terms. What comments I might make about the generality of the issue should not be taken as an oblique commentary on any of the schemes mentioned in the debate today, no matter how tempting that might be for some.

Since the debate in January, the world has indeed moved on, and I have tried to take some steps as well. As has been said, we published a consultation on options for defined-benefit schemes in February. The consultation reflected a new funding landscape, where funding levels are generally high and many schemes are in surplus. The consultation sought feedback on proposals to make surplus extraction easier, where it is safe to do so, and on the model for a future public sector consolidator, operated by the Pension Protection Fund. The consultation is now closed and we are currently analysing the responses. It closed only a fortnight ago, so we are not quite there yet, but there will be a Government response in due course. But I can be clear today that better outcomes for savers lie at the heart of our proposals. I stress, given the comments we have heard today, that the proposals on surplus sharing include a range of safeguards, as the starting and foundational principle, to ensure that member benefits are protected.

Photo of Alistair Carmichael Alistair Carmichael Liberal Democrat Spokesperson (Home Affairs), Liberal Democrat Spokesperson (Northern Ireland), Liberal Democrat Spokesperson (Justice)

I can understand the attractions of such changes for Governments and corporates, but I impress upon the Minister the need to ensure that if changes of this sort are to be made then the first protection always has to be for the beneficiaries. If there is to be flexibility for Governments and corporates to get investment in big infrastructure projects, that is to be encouraged but it should never be at the expense of the pensioners themselves.

Photo of Paul Maynard Paul Maynard The Parliamentary Under-Secretary of State for Work and Pensions

That is very much the approach that I am taking with this matter. It has been discussed at great length at the sector roundtables that I have been present at. It has been a very strong theme that I have heard, so I can assure the right hon. Gentleman that I am acutely conscious that that is the lens through which I am looking at the issue.

Photo of Julian Lewis Julian Lewis Chair, Intelligence and Security Committee of Parliament

My hon. Friend did say that things had moved on since January. May I gently remind him that it was in January that he told the Work and Pensions Committee that he was waiting to hear from his officials who were in discussions with the Cabinet Office about the AEA Technology pension scandal? He has since been saying that there is no timeline for how these people will be advised of appropriate redress. Does he expect there to be no timeline between now and the general election, or can they expect a definite answer at some point before then?

Photo of Paul Maynard Paul Maynard The Parliamentary Under-Secretary of State for Work and Pensions

My right hon. Friend has pre-empted a topic that I was about to come to, because I could see that it was going to come up in the discussion on the Select Committee report. I have now been to see the Cabinet Office Minister with my officials, and my officials then went back for a second visit. So although I cannot give him a timeline, I can say that I am motoring this issue along as rapidly as I can. When I say that this is complex, it is because it is complex; it is not merely because that is a useful and convenient word to cover a multitude of things. We continue to work as fast as we can to try to reach a conclusion. I hear the points that he has made to me, both in this place and outside, about wanting to draw this to a conclusion as best we can.

The regulations that I referred to on the funding and investment strategy clarify what prudent funding plans look like, allow open schemes to take account of new members and future accrual, make it explicit that there is headroom in the regulatory environment for schemes to invest more productively, and require all schemes to be clear about their long-term strategy to protect member benefits.

DB funding levels have improved in recent years, and it is important that schemes take advantage of the opportunities that this brings. The scheme funding regulations will help schemes get the most from their assets, while at the same time ensuring that scheme members can be confident that they will receive the benefits that they are promised.

The regulations embed good practice and build on the existing funding regime for DB schemes by providing clearer funding standards, which will ensure, as far as possible, that schemes are properly funded over the long term. Scheme members can and should be confident that the regulations provide increased security for their promised pensions, which is important to many of the people whom the right hon. Member for Orkney and Shetland is trying to support through this debate.

In addition, the new general code for the Pensions Regulator has come into effect since we last discussed these issues. The new general code consolidated and simplified 10 of the existing codes to make it easier for trustees and those running occupational pension schemes to find the information they need on the regulators’ standards of conduct and practice. It came into force at the end of March this year.

I will do my best to reply to some of the points that have been raised in the debate before I continue with my speech. I am grateful to the Chair of the Work and Pensions Committee, Sir Stephen Timms, for covering many of the issues in what was a very helpful report on DB schemes. I know that we often discuss Select Committee reports in this place on a Thursday, and it is quite right that we should do so. Normally, however, we do so after the Government have issued their official response to that Committee report. If the Chair of the Select Committee will forgive me, I will not pre-empt every recommendation in the report. But I can assure him that I sat down for a marathon session with my officials not so long ago, going through every last sentence in the report, so I can tell him that I am giving the matter full consideration.

It is worth noting that both Jim Shannon mentioned the auto-enrolment reforms. I am happy to place on the record today our ongoing commitment to consult in the mid-2020s on that issue. I am keen to make progress. I hear all across the Chamber that there is a recognition of why it is important that we make as rapid progress as we can.

The right hon. Gentleman mentioned that he will have to provide a consultation. He summarised the general tone of the contributions very well. Certainly there have been more responses to that consultation than to any other during my time in the Department. I have read most of them myself, rather than just waiting for the summary. I have absorbed similar mood music to the right hon. Member for East Ham, and I hope that we can have a proper Government response very soon.

Photo of Stephen Timms Stephen Timms Chair, Work and Pensions Committee, Chair, Work and Pensions Committee

I thank the Minister for the attention that he is paying to the recommendations in our report. On the auto-enrolment review recommendations, does he envisage the consultation on implementation happening this side of the election?

Photo of Paul Maynard Paul Maynard The Parliamentary Under-Secretary of State for Work and Pensions

No decision has yet been taken on when that might be. It would be wrong for me to speculate at the Dispatch Box about when it might occur but, as I say, I am keen for it to happen as soon as we can manage it.

Stephen Doughty rightly raised his constituents and the AWS pensioners. As he may be aware from the oral evidence I gave to the Work and Pensions Committee, I have met with the pensioners. I fear this always sounds like a cliché, but I listened carefully, commissioned work on the back of that meeting, received that work and reviewed it, and then commissioned some further work on the back of that. The policy development process is ongoing. I am happy to meet the hon. Gentleman. He asked for a timeline. He actually read out my timeline when he quoted my reply to him from 18 April, so he answered his own question. As I say, I will happily meet with him and the pensioners, but I caution him that I doubt that I can say very much more at this stage than I have already. He may want to consider at what point he wishes to have a further meeting, given that it is a long way for them to come from south Wales to hear me say what I already said to them a few months ago, but I am working hard on the issue.

My right hon. Friend Dr Coffey spoke eloquently about the potential value of CDCs, not least in this place. I cannot wait for the Royal Mail one to get off the ground. I welcome her comments on the importance of employers doing right by their employees. We should always note just how many do that. She asked for an update on the pensions dashboards. As I am sure the House knows, there was a reset of the pensions dashboards shortly before I arrived in the Department. I have taken a close personal interest in it, having overseen a few rail infrastructure projects in my time that also needed a bit of a reset. The chief executive of the Money and Pensions Service, Oliver Morley, and I are taking a careful, scrupulous and in-depth interest in the progress of the reset. I am satisfied that we are making good progress. The timetable for connections has now been issued, and we are very much on track.

The hon. Members for Strangford and for Ayr, Carrick and Cumnock (Allan Dorans) mentioned WASPI. I am not sure that there is much that I can usefully add right now, because I do not think that this is the debate for it. I note the comments that were made and entirely understand them. As the hon. Member for Strangford mentioned, there will be a debate on WASPI in this place very soon, as an important part of the engagement with Parliament that the ombudsman identified. I look forward to hearing what Members have to say.

I will do my best to cover a few issues around discretionary increases, because it is important to put on record the legal situation. There are clear legal requirements for schemes to provide indexation on all defined-benefit rights accrued after 1997, and on guaranteed minimum pension rights accrued between 1988 and 1997. Some pension schemes go beyond the legal requirements and provide more generous indexation. If higher levels of indexation are set out in the scheme rules, those levels of indexation must be paid. The scheme rules set out the pension package that members have the right to receive. Some schemes provide additional indexation on a discretionary basis. In some cases, these payments may have been made regularly in the past, but they are not part of the pension package promised by the employer; rather, they are, and remain by definition, discretionary.

I understand the frustration that will cause for pension scheme members no longer receiving such discretionary increases, and during a previous debate I committed to looking closely at the situation in order to better understand whether the arrangements that we have in place are working as intended. That commitment still stands, and I recently met with the Pensions Regulator to personally discuss the issue, along with many of the other concerns that were raised in January, and indeed some of those raised today. I have to stress that the legislation does not and cannot seek to set out exactly what every scheme must do in each and every circumstance. The legislation sets out some minimum standards for indexation. That does not prevent more generous arrangements, which may be brought into a scheme through its rules or provided on a discretionary basis. Those arrangements are the concern of the scheme trustees.

The Government set a minimum legal requirement, which trustees and sponsoring employers can exceed if they choose, if they judge that scheme can afford it in the short and the long term. It is important to achieve a balance, providing members with some measure of protection against inflation while not increasing a scheme’s costs beyond what most schemes can generally afford. Trustees, whether of big firms or small ones, must have an eye to the future viability of their scheme.

I am very grateful to all Members who have contributed to this debate. It has been wide-ranging, partly because, being called “Pension Schemes”, it covers a multitude of issues beyond the more precise ones that the right hon. Member for Orkney and Shetland raised. I am grateful to all who have participated, and I commit to working much harder on this issue in the future, because I know how important it is to many of our constituents.

Photo of Alistair Carmichael Alistair Carmichael Liberal Democrat Spokesperson (Home Affairs), Liberal Democrat Spokesperson (Northern Ireland), Liberal Democrat Spokesperson (Justice) 3:15, 2 May 2024

When I contacted the Speaker’s Office this morning, I was told there was only myself and Sir Stephen Timms down to speak, so I am delighted that we have had a good debate. We have had contributions from no fewer than 10 Members, which, given what is happening elsewhere today, is quite significant.

A number of Members made reference to the WASPI issue; I did not do so in the course of my remarks because it was not really germane, but it is a point well made and I very much associate myself with it. The ombudsman took long enough to get a report on that, and now we need to get on and honour it. Otherwise, what is the point of having an ombudsman in the first place?

The function and purpose of debates such as this is to ensure that the concerns of our constituents are heard in Government; the presence of the Minister on the Front Bench is an important symbol of that. The companies to which reference has been made, BP, Shell, ExxonMobil, Hewlett-Packard and Allied Steel and Wire, are some of the best known high street names in the country, and I hope that what we have heard in this debate will be heard also in the boardrooms of those and other companies. The people who run those companies should understand that we are watching what they are doing, that they have an obligation to treat their former workers and their pensioners fairly and that, if they do not have it within themselves to do that, we in Parliament and in Government will make sure that they have to.

Question put and agreed to.

Resolved,

That this House
has considered pension schemes.

Photo of Stephen Doughty Stephen Doughty Shadow Minister (Foreign and Commonwealth Affairs and International Development)

On a point of order, Mr Deputy Speaker, I understand there are reports online of a veteran allegedly being prevented from using their veterans ID card, which is a Government-issued ID card, for voting today in the elections that are taking place across the country today. I am sure that will be of concern to Members across the House. A Government Minister has apparently made a public apology and said that they will try to get the issue resolved. I wondered whether you had had any notice of an urgent statement next week on the matter. It does seem bizarre, not least because current military identity cards can be used, and the card is a Government-issued document. I declare an interest as a holder of one of those veterans cards, but it does seem very strange and I hope we can get some clarity on this from the Government. Have you had any notice of such a statement?

Photo of Nigel Evans Nigel Evans Deputy Speaker (Second Deputy Chairman of Ways and Means), Chair, Restoration and Renewal Programme Board Committee, Chair, Restoration and Renewal Programme Board Committee

I have had no notification from any Government Minister that there will be a statement today. As you know, at the end of proceedings today, we go into the May recess and we will be reassembling on Tuesday. I know that those on the Treasury Bench will make certain that your comments are made available to Ministers, in order that there can be a response.