Work and Pensions Committee (WPC) chair, Debbie Abrahams, has written to the Pensions Minister, Torsten Bell, to request further information on several key issues raised during the recent evidence session on discretionary increases.

The WPC previously held a session to hear evidence on the impact of non-inflation indexation, particularly affecting some with pre-1997 pension rights, from leading figures from affected retirees’ campaign groups.

During the session, WPC was told about specific concerns around the Pensions Schemes Bill, with the BP Pensioner Group warning that "recalcitrant" employers may simply use a veto power to completely block or minimise surplus sharing and frustrate the government’s good intentions.

Bell had previously suggested that changes to defined benefit (DB) surplus rules in the Pension Schemes Bill could actually help address discretionary increase issues, arguing that trustees could negotiate an agreement on indexation before agreeing to any DB surplus release.

Abrahams acknowledged that "this would change the dynamic of the discussions, which in some cases were not proceeding because employers were saying a 'blanket no'".

However, she pointed out that it is not yet clear how many trustee boards will take up these new opportunities to release surplus to the employer, suggesting that many are likely to continue to focus on what they see as their key role of securing promised benefits.

"The campaign groups we heard from were sceptical that scheme members would benefit," she noted, highlighting specific concerns that it might provide a further incentive to refuse discretionary increases in order to concentrate on building up surplus.

In particular, the committee heard that pensioner campaign groups remain concerned that trustee boards that wanted scheme members to receive a share of the surplus would not have the power to ensure that happened.

Proposals to address this included: a specific power for trustees to release surplus to scheme members, and a requirement to at least partially restore purchasing power before surplus was released to the employer.

There were also calls for the government to make it easier to make one-off payments to scheme members, through changes to tax legislation, which would have the advantage of not adding to scheme liabilities.

In addition to this, there were calls for an independent arbiter to be appointed in cases where trustees and the sponsoring employer do not agree on how a surplus should be distributed, a role that The Pensions Regulator previously played in relation to deficit reduction payments.

Given this, Abrahams asked Bell for more information on any discussions the government has had with HMRC regarding any changes to pension tax legislation needed to enable one-off payments to scheme members. 

She also asked what consideration has been given to the case for an independent arbiter, and what alternative plans have been considered for monitoring how surplus is distributed and acting if trustee recommendations are not implemented?

In addition to this, Abrahams asked the Minister to provide more information on what information the government has about how scheme surpluses are distributed between employer and scheme members at wind-up; and whether decisions are for trustees, employers, or both.

This comes after the government amended the Pension Schemes Bill at the committee stage to make clear that the powers in clause 9, which relate to the payment of surplus to the employer, were "not intended to affect schemes in wind up where the majority of schemes will have existing rules about how surplus should be distributed at the point of wind up." 

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