MPs have broadly backed plans to index for inflation on pensions accrued before 1997 in the Pension Protection Fund (PPF) and the Financial Assistance Scheme (FAS), although the Pensions Action Group has argued that, despite progress, an improved solution is still needed.

The Pension Schemes Bill had its third reading earlier this week, which saw a particular focus on the government's amendment designed to provide pre-1997 indexation within the PPF and FAS, as announced at the Budget.

Pensions Minister, Torsten Bell, admitted that this has been a "long-running" issue, acknowledging that "we have all heard about the challenges caused by the lack of indexation of compensation related to pre-1997 pensions".

However, he argued that the changes are intended to bring the matter to a conclusion.

"It is a step change that will make a meaningful difference to over 250,000 members," he stated.

"Over five years, the average PPF compensation will be boosted by £400 a year. Of course, I recognise that this does not go as far as some affected members would have wanted, but this change is real progress and rightly balances the interests of eligible members, levy payers, taxpayers and the Pension Protection Fund’s ability to manage future risk."

The changes were welcomed by MPs, with cross-party support seen from across the House of Commons.

However, the Pensions Action Group (PAG), which has long been campaigning for pensioners on this issue, said that while it is grateful for the proposals now approved for inclusion, an "improved solution" is needed to avoid being "just window dressing".

In particular, the PAG noted that whilst the Minister has committed to introducing pre-97 indexation to an annual maximum of 2.5 per cent, "this offers no improvement until 2027 by when the death toll of 33,000 will have inevitably grown".

The group stated: "Many politicians in both Houses of Parliament, the PPF, the Work and Pensions Committee and others are in favour of making the changes to resolve these inadequacies and the Pensions Bill is the ideal mechanism to implement them.

"However, it must be ensured that the changes completely meet the needs of FAS members and are not just window dressing, especially as the PPF reserve has the funds to cover the costs involved.

"This means that the government should also apply some level of retrospective increases to help those workers, and the spouses of any recipients who have passed away, that have suffered the most economically, given the high rates of inflation in recent years.

"Minister, we acknowledge your efforts, you listened to our history, you recognised the
injustice and our campaigning so we now call on you to please provide the retrospective
pre97 indexation that we all paid for and don't leave our members out in the cold!"

And despite the consensus on the PPF/FAS indexation, broader concerns over historical indexation remain, as several MPs warned about wider indexation questions for solvent pension schemes.

MP for Surrey Heath, Al Pinkerton, for instance, said that he has been in touch with constituents who often worked for very large American companies, such as Atos, which are refusing to offer the pre-1997 uplift.

Further concerns were raised by Conservative MP for New Forest East, Julian Lewis, who highlighted the lobbying efforts of ExxonMobil pensioners, and MP for Torbay, Steve Darling, who highlighted issues affecting pensioners from American Express, Esso and Hewlett Packard.

This list grew as the debate continued, as MP for Llanelli, Dame Nia Griffith, shared a list of companies that have not indexed their pensions, and for how long: "Goldman Sachs—10 years; KPMG—15 years; Lloyd’s Register—nine years; Johnson & Johnson—11 years; NCR (Scotland)—11 years; Chevron—13 years, 3M—16 years; Pfizer—16 years; AIG—18 years; American Express—20 years, Atos/Sema—20 years; STMicroelectronics—21 years; Hewlett Packard Enterprise—22 years; and Wood Group—23 years.

"Given that, we can imagine the loss in value of those pensions now."

A key issue highlighted by MPs was the fact that many of these employers are multi-national, as Darling, pointed that "those companies—strangely enough, it seems to be overseas companies—have left pensioners out in the cold".

Given this, Darling expressed hope that the government consultations will pick up on that and give clear guidance to trustees on how they ought to support those members.

Bracknell MP, Peter Swallow, agreed, encouraging the government to include the "important issue" of pre-1997 indexation as part of its next consutlation on trusteeship, expected this year.

However, there were concerns that guidance could not go far enough, as Griffith argued that "we know from lots of evidence that the only way the companies will listen is through legislation". 

"These companies are multinationals, and in countries where there is legislation, they pay up—so they do respond if there is a law," she stated.

"Saying that the trustees have the powers is sadly very far removed from the reality. Trustees of various countries have asked repeatedly for indexation, and before handing over any surplus to the companies, they will be very wary because they do not trust them at all. They will want cast-iron guarantees on indexation."

This was echoed by MP Ayr, Carrick and Cumnock, Elaine Stewart, who asked: "If good co-operation is not forthcoming, will the Government look to other legislative means to correct this course?"

"Many of these schemes are backed by profitable multinationals, yet discretion has failed."

Bell, however, suggested "the level of pessimism may be overstated," arguing that the upcoming DB surplus changes, "which put trustees clearly in the driving seat, provide for more ability for trustees to seek to change that balance of power within their relationship."

In particular, he suggested that the upcoming changes on surplus release would give trustees more leverage with which to ask for increases.

But this argument was challenged by Lewis, who stated that "the trustees are rather hemmed in by not having the leverage or the freedom to act if the company itself—particularly if it is headquartered abroad—is disinclined to pass on any surpluses that it might have available".

Whilst Bell acknowledged that the changes would not solve the problem "overnight", he pushed back, stating:  "My view is that our changes on surplus, which put trustees clearly in the driving seat, provide for more ability for trustees to seek to change that balance of power within their relationship.

"I do not want to prejudge the individual discussions between all trustees and their employers—those will be different in different circumstances—but trustees are in a stronger position given the changes on surplus release that we are introducing through this Bill."

Whilst Bell confirmed he would meet with MPs on these issues, he also clarified that "we do not support retrospectively changing scheme rules".

"Neither did previous Conservative or Liberal Democrat Governments, given that contribution levels were set on the basis of the scheme rules at the time they applied," he stated.

"As I have said before, and as I discussed recently, wider changes in the Pension Schemes Bill relating to surplus release will put trustees in the lead in a way that will help on this issue."  

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