Some of the world's most prominent multinational corporations, including Hewlett Packard Enterprise (HPE), American Express, and Pfizer, face accusations of exploiting a loophole in UK pension law. This alleged exploitation has led to the freezing of payout increases for numerous former UK employees. Pension groups and advocates are urging these corporations to adjust the frozen pension payouts in line with inflation, as many retirees grapple with financial uncertainty.
The controversy centers on company pension benefits accrued before April 1997. The Pensions Act 1995 aimed to strengthen regulations following the infamous Robert Maxwell scandal, which saw millions plundered from Mirror Group pension schemes. Although the Act introduced a requirement to link final salary pension schemes to inflation, it excluded pre-1997 benefits from this mandate. Consequently, thousands of pensioners now rely on discretionary increases by companies, alongside any legal rises.
According to figures from the Pension Protection Fund, about one in four pre-1997 schemes lack mandatory rules to increase payouts. The manufacturing giant 3M and pharmaceutical leader Pfizer are among those criticized for not properly linking pre-1997 pensions to inflation.
Patricia Kennedy, co-chair of the Hewlett Packard Pension Association, commented on this issue:
“The majority of companies do the right thing and pay some form of inflationary increase. There’s a small number that don’t pay.”
Hewlett Packard Enterprise has responded by stating its commitment to evaluating discretionary increases annually. An HPE spokesperson explained:
“Each year, we carefully consider whether to grant discretionary increases to relevant pensioners based on a number of factors. HPE UK will continue to give this matter due and appropriate consideration.”
The history of discretionary increases under HPE reveals modest figures. Since acquiring DEC in 1998, HPE reported a total increase of just 5% for pre-1997 pensions, with increments occurring only in 2004, 2008, and 2022.
American Express also faces criticism despite reporting global profits of $8.4 billion for the year ending December 31, 2023. An Amex spokesperson defended their practices:
“American Express complies with all its pension obligations. The company annually reviews whether a discretionary increase will be awarded in respect of pre-1997 pensions. The next review will be in 2025.”
Pfizer's stance was similarly defensive, with a spokesperson stating:
“Pfizer UK has an obligation to patients, colleagues and shareholders to apply company funds responsibly. We apply the same responsibility to decisions around discretionary pension increases, considering all appropriate factors alongside the overall market position.”
A spokesperson for the Pensions Regulator emphasized:
“Minimum indexation requirements for pension benefits are set out in legislation. What discretion trustees have to increase member benefits depends on a particular scheme’s rules, but we know most schemes do provide for pre-1997 increases. Introducing new legislation in this area would be a matter for government.”
The Department for Work and Pensions also highlighted their role in ensuring companies adhere to promises regarding defined benefit pension schemes:
“Our priority is making sure companies are meeting their promises over defined benefit pension schemes and we’re working with the Pension Regulator to understand where that’s not being met – while striking the right balance between providing members with protection against inflation while not making schemes costs unaffordable.”
Former employees have voiced concerns over financial instability during retirement. David McIlroy, aged 70 and a former DEC employee, shared his frustrations:
“The pension was described to us at the time as the gold standard. The expectation was that it would be upgraded with the cost of living.”
Similarly, Fraser Bridgeford, another former DEC employee aged 65, expressed his disappointment:
“I was a loyal employee for over 23 years and believed this loyalty would be repaid. Instead, I face financial uncertainty in my retirement.”
Pension groups are advocating for an inquiry by the Pensions Regulator to assess the extent of the issue and explore potential legislative changes to ensure inflation-linked increases for pre-1997 defined benefit pensions.