‘Digital Equipment Ltd’s pension scheme’

Before April 1997 there was no general obligation on Defined Benefit (DB) schemes to increase pensions in payment, although many schemes did apply some form of inflation protection on a voluntary basis.  Limited Price Indexation (LPI) – a requirement to increase pensions built up from 1997 in line with the Retail Prices Index (RPI) capped at 5% was introduced in the Pensions Act 1995 (s51).

The ‘Digital Section’ of the Hewlett Packard Retirement Plan contains provision for indexation of pre-1997 rights at the discretion of the employer. The Hewlett Packard Pensioners Association (HPPA) says that although pensioners received increases before 2002, since then they have only had “two token 1% rises” and that this has resulted in a considerable diminution in their buying power. It wants the law to be changed to require indexation in future of rights accrued before 1997.(HPPA Briefing Paper, December 2016).

Opening a Westminster Hall debate on the issue in January 2017, Corri Wilson drew attention to the impact on scheme members of not receiving indexation on rights accrued before 1997:

The Hewlett Packard Pension Association claims that withheld cost of living increases have so far cost pensioners an average of £24,000 compared with their colleagues whose contributions were made post-1997. This has led to severe financial hardship for many of those pensioners and has resulted in them being aunable to afford an ordinary living pattern, being on the verge of poverty and requiring Government subsidies in the form of income support benefits(HC Deb 17 January 2017 c272WH).

The HPPA had called on the Government to change the law to require pre-1997 rights to be index-linked. She asked the Government to address the issue (Ibid).

The then Pensions Minister Richard Harrington responded that to do this would “place unexpected and significant costs on employers”. The Conservative Government that first introduced the indexation requirements had been conscious of the need to balance the interests of employers and scheme members. The same considerations applied now (Ibid c281-2WH).

In response to a PQ in March, Mr Harrington said that the company was “meeting its legal obligations”. Any increases to pensions in payment were “likely to mean significant additional expenditure for any scheme and its sponsoring employer. Therefore the Government has no plans to require all schemes to pay increases on pre-1997 pensions.” (PQ 69179 30 March 2017)