The Trustee and the difficult struggle for “Fairness”

From “Pensions Age” December 2011

It’s not just that the world of Pensions is complex or that, in some cases, the Pension Scheme is a huge burden on the funding Sponsor that being a Trustee is so challenging. Every Trustee also knows that it is an insufficient discharge of their duties just to ask the lawyers what to do when a decision on something important is needed. The challenge is at its most difficult when the law is ambivalent and we are asked to exercise judgment – simply put to decide what is “fair” in any one situation. It would be nice to be able to echo Abraham Lincoln and say that our members ask for one thing “fairness and fairness only” and that “…so far as it is in my power [this is what] they shall have”. The problem, of course, is what is seemingly fair to one person may not be to another - one group of Pension Fund beneficiaries may be advantaged by a decision but another group may be disadvantaged.

As a Trustee I must act in the best interests of the members and of the beneficiaries overall – and that latter category includes the Sponsor. It is arguable, and has indeed often been argued, that if a Company’s future prospects are seriously hampered by a burdensome Pension Fund then the Trustee should be sympathetic to change – even if that change is in some way disadvantageous to members. This in essence is the Government’s public sector proposition – that unfunded Public Sector schemes are too great a charge on taxation and that the package of benefits currently enjoyed by scheme members must be reduced. Whether you believe that to be “fair” or not depends partly on how you balance employee and pensioner rights on the one hand and the rights of the population at large on the other. No easy task!

Fairness is also linked to “norms”. If the majority enjoy a benefit but a minority, through no fault of their own, do not that is on the face of it unfair. Similarly if a privileged minority receive Pension protection when the rest of the members do not the charge of unfairness and discrimination can also be levelled. This brings us into the whole fractious debate about executive compensation and in particular about the “one per-cent” and the “ninety-nine per-cent”. The huge and growing inequalities that exist between the compensation of a small number of very senior executives in a company and the rest of that company’s employees carry on into retirement. The one per-cent will nearly always be protected from negative changes that might be agreed to the Pensions of the ninety-nine per-cent not just by the sheer size of their pension but by a willingness of their successor directors to ring-fence their predecessors’ substantial retirement income. It is, after all, in the interest of the existing Company Board to do this – they’ll be retired one day soon as well!

So when a Trustee is informed of a proposal for a change that he knows is solely designed to protect the interests of the already very well provided for 1% what should he do? Especially if, as is likely to be the case, the implementation of this change is external to the Fund and is neutral on it. There is no obligation on a Trustee to ensure that all members of a DB scheme are treated equally – it there was the increasingly common practice of closure of the Fund to further accrual would not be permissible. Similarly, and for the reasons already alluded to, there is no imperative of “fairness” – other than, perhaps, the highly subjective one of “Natural Justice”. We may, as individuals, regret that we have a society in which a small number of “High Net Worth” individuals just get richer but, as the music hall song has it, "It's the same the whole world over, It's the poor what gets the blame, It's the rich what gets the pleasure, Isn't it a blooming shame?". Having said that whilst it is rarely, if ever, the case that you make the poor richer by making the rich poorer the ratcheting up or protection of benefits for the 1% does, if it happens, somewhat alter the context within which the benefits of the 99% are being discussed. Class war rhetoric is probably best avoided – but the odd subtle hint that some members are more equal than others might help sometimes!

Paddy Briggs

Paddy Briggs is a Member Nominated Trustee of the Shell Contributory Pension Fund. He writes in a personal capacity.

Pensions – the increasing gap between the Public and the Private sectors

One of the least edifying aspects of the febrile debate on public sector pensions is the charge being made, often by people who should know better, that current public sector pensions are in some way “Gold-plated”. It is certainly true that the retirement prospects of employees in the private sector have been dealt a series of blows over the past decade – blows from which employees in the public sector have hitherto been immune. But it is facile and wrong to say that the problem is one of equity and that public sector pensioners should “suffer” in the same way that those in the private sector will.

Defined Benefit schemes

The basic premise of the pensions offer to employees in the past was broadly the same in the public and the private sectors – although whereas all public sector employees benefited far from all private sector employees had workplace schemes. The Defined Benefit (DB) pension schemes that were constructed in the immediate post-war years had two elements at their core. Firstly there was the understanding that the longer you worked for a particular employer the more pensions rights would accrue. Second there was the guarantee that when you retired your pensions would be directly related to your income at the time of your retirement. These DB schemes were predicated on the “Final Salary” principle. Typically a scheme would offer (say) 1/54^th of the final salary for each year of service – so If an employee had a salary of £26,000 on retirement and had 35 years’ service his pension would be around £16,000 – roughly 65% of his final earnings. In addition, but not in all cases, he would be entitled to a State pension at 65 and this combination of “workplace” and State pensions offered the prospect of a comfortable retirement.

Lord Hutton’s Commission recommendations broadly retained the key elements of the DB scheme that public sector employees have traditionally benefited from. Crucially the DB principle itself is retained albeit that pensions will in future be based not on final salary but on a career average. However although the DB principle is retained, and there are other protections built in, public sector employees will have to work longer before they can enjoy a full pension and the annual increases to their pensions that they will enjoy in retirement will be linked to a lower index (the Consumer Price Index - CPI) than the Retail Price Index (RPI) that was used in the past. They will also have to pay more towards their pensions in “contributions” over their years of employment.

Public Sector Pensions are unfunded

The absolutely crucial point about pension schemes in the Public sector is that they are mostly “unfunded” and this fact lies at the heart of the Government (and Lord Hutton’s) proposals. Unlike schemes in the private sector there is no “pot” from which the pensions of a retired nurse or teacher will be paid. The “contributions” are not set aside but just go into the Treasury along with taxes - in effect contributions are just another part of the tax on incomes, like National Insurance. And the pensions payments are and will continue to be made from taxation. If this is understood the true driver of the Government’s actions becomes clear. it is promoted as a significant element of the deficit reduction programme - the Government wishes to reduce its expenditure and pension payments are in the firing line. The size of the public sector pensions deficit is enormous – between £780bn and £1200bn depending on which accounting convention you choose. In truth the changes proposed will have only a minor effect in the short-term and, like so much of the Government’s “Cuts” programmes, they can be seen as being more about maintaining economic confidence and protecting the UK’s AAA rating than anything else!

The strike is an action against spending cuts

The strike which took place on 30^th November by public sector employees needs to be seen primarily as a strike against Government budget cuts. Arguably the most insidious element of what the Government proposes to do to public sector pensions is to change the annual increment indexation (from RPI to CPI) because this affects directly the income of today’s pensioners. In effect this is a retrospectively applied income tax. Pensions are deferred earnings – during years of employment workers accrue rights and make contributions and thus they defer some of their income until later (pension) years. To change this after employment is finished is a highly questionable action - almost a breach of contract (the social contract if not the legal one).

Pensions are deferred income

The comparison that should be made when the public sector debate is underway is not the comparison with the private sector but a comparison with other elements of public expenditure. If we look at a public sector employee from the date of their commencement of employment to the date of their death the Government pays them for their services over this full period. Some of the income is paid during the employment years and some is deferred until retirement – but it is all a payment made for a service rendered. Arguably the Government should no more change a pensioner’s rights than they should ask that same pensioner to return some of the salary they have already received! And certainly the “in service” change to an employee’s contract implicit in the Government proposals is a clear breach of the social contract that existed when that employee was originally recruited and throughout their employment to date. Pensions promises once made will not now be fully honoured because the changes proposed are not just to the deal for new employees but to the entire existing public sector workforce as well.

Private sector employees are increasingly vulnerable

If public sector pensions are a burden on the taxpayer (they are) the same does not apply to private sector pensions. And if some people decided to work in a career in the public sector because they felt that their financial future would be more protected then in the private sector they were certainly right to do so – at least so far as pensions are concerned. As we have seen the basic pensions premise in the past was broadly the same in the public and private sectors – even if the funding arrangements were different. In the private sector DB pension schemes have always been “funded” – that is a “pot” is built up by levying a contribution from employee and employer over the years of employment. For some well-managed schemes the pot is today broadly large enough to cover the likely future call on it. The Assets of the Fund match its Liabilities. However partly as a result of mismanagement and partly as a result of changing demographics (particularly significantly increased longevity expectations) many funds have a shortfall – a situation that is exacerbated by a difficult investment and economic climate. Over the last decade the mismatch between Assets and Liabilities has led many employers to make changes to their Pensions arrangements - changes that impact far more negatively on their employees than anything that the Government proposes in the public sector.

Companies are walking away from their Pension obligations

Publicly traded corporations are not charities and however much they might like to argue otherwise their principal and overriding obligation is to their shareholders. It was ever thus. As we have seen, in the past a company would offer its employees a compensation package which included Final Salary pension arrangements. They did this not because they felt any social obligation to look after their employees in retirement but because it was a pragmatic thing to do. If your competitors are offering a Defined Benefit pension scheme you better do so as well – in order to attract and retain staff. This was, of course, at a cost (the employer’s Pension Fund contributions) but it provided ancillary benefits in terms of loyalty and maybe also the opportunity to do a bit of bragging about being a socially responsible employer. This paradigm was largely unchallenged for over 40 post-war years.

But in the 1990s things began to change. The compensation culture, especially at the top of companies, moved from any element of “jam tomorrow” to a mainly “jam today” mind-set. Post Margaret Thatcher’s “big bang” the earnings potential in the City spiralled upwards and the bonus culture was born. Little of this trickled down to ordinary employees but it certainly trickled sideways moving from the financial sector to most other British businesses. As the head honchoes of British companies (especially the FTSE 100 ones) paid themselves more and more so they sought to find specious justifications for this largesse to themselves. This was to come from performance metrics which showed how “well” they were doing and why it was legitimate to pay themselves as much as they wanted to. Business is simple really. You sell things to generate income and in so doing you incur costs. There are two ways of boosting the resultant cash or profit generation. You sell more and/or better things and generate more income. Or you cut your costs. And if cutting costs means you cut off your long term nose to spite your short term face so be it. Bonuses are paid in the short term. So if you can find some fat in the system and cut it that has to be good doesn’t it – even if that “fat” sits in the pensions obligations you have to your staff.

The downward spiral in the corporate world’s commitment to making proper pensions provisions can be traced back to those companies whose Pension Funds got into trouble – that is to say their Liabilities began far to exceed their Assets. The very fact that many companies did not let their Funds get into difficulties shows how venal it was that some did. In short some companies mismanaged their Pensions schemes for years - and the Trustees of these schemes let them do it. Having got into trouble these companies tried to find a way out - one that would reduce their (the companies not the schemes) liabilities. Briefly they sought to minimise the statutory obligation of having properly to fund a scheme now or at some point in the future if that fund had a shortfall.

The Defined Contribution scam

The biggest change comes from a decision to close a DB scheme to new entrants. It’s comparatively easy to do, has little direct effect on existing employees and can have an immediate benefit on the bottom line. In place of the DB scheme the employers who took this course generally created a Defined Contribution (DC) scheme in its place. For public consumption and in the forums in which Corporate Social Responsibility is discussed this would be presented as both an economically sound decision (lowering costs) and a socially responsible one. But a DC scheme is a pale shadow of its DB cousin. Essentially it is a savings pot owned by the employee into which he and the employer make contributions over the period of the employee’s working life with the company. On the face of it not that different from a DB scheme – except in one crucial particular. The Pension received on retirement is solely determined, not by the retiree’s final salary or by a career average, but by the size of the money pot accumulated on the date that an employee retires. That pot has to buy future income flows through an annuity purchase and the cost of an annuity is unpredictable. The pot size itself is a function of the health (or otherwise) of the retiree’s investments. So whilst a DB scheme offered a very high degree of certainty which would help an employee plan a comfortable retirement a DC scheme does anything but. And the benefits, such as they are, are very expensive as well – as the employee will find to his cost. In the DB example above, based on average UK earnings, an employee would have a pension of £16,000 a year (plus the State pension). To achieve a similar pension from a DC scheme that employee would have to have built up a pot of around £400,000 at current annuity rates. In 2011 money assuming that the employee had worked for 35 years at £26,000 per annum he would have earned a total of £910,000 over his employment years. That means that to have enough money in his pot he would have needed to build up a pot equivalent to around 45% of his aggregate pre-tax income. Put another way every year he and his employer would have had to make contributions of £11,500 per annum to fund a pot sufficiently large to allow him to retire on a pension of 65% of his final salary! Not very likely is it?

I have called DC schemes a scam but this is perhaps a little unfair. A well run DC scheme may be quite a good and a tax efficient savings opportunity. But the only beneficiary when a Company closes a DB scheme and offers a DC scheme to new employees is the company itself. That’s why they do it. But it doesn’t stop there. Companies can and do attempt to reduce their pensions liabilities (real or imagined) in other ways as well. They may decide to change the index used for the calculation of annual increments from RPI to CPI as is proposed for the public sector with the same outcome – lower pensions. This is what British Airways is trying to do and it has caused a furore in their Pension Fund Trustee Board. They may stop existing employees from accruing benefits which means that for an employee in mid-career their pension will be substantially reduced. (In the example above had the scheme been closed to further accrual half way through the employee’s career his pension would have been halved). Or they may decide to close a scheme entirely – as Unilever has announced it will be doing. The Unilever case is an interesting but sadly not atypical one. This is what Unilever’s Chairman says “…the changes have been proposed to help tackle the increasingly unaffordable and unsustainable costs associated with Unilever's UK pension fund”. Unilever made profits of over £6 billion in 2010 and there can be no doubt that if they had wanted to they could have maintained their existing Pension arrangements which were in reality far from “unaffordable”. No the real reason is that Unilever judged that to offer employees pensions scheme as they had in the past was no longer necessary – i.e. necessary to give them an advantage or maintain their position as an employer. In their promotional literature they make all the usual motherhood statements about how important their employees are but they are not the only employer whose pensions actions don’t match their corporate rhetoric.

Whilst the first imperative to abandon – either completely or partly – the old DB scheme Pensions arrangements came from those companies with Pension Funds in difficulties now it is the target for all. Profitable businesses as well as struggling ones are seeking to reduce their pensions burden (or potential burden) by moving away from DB to DC. It becomes almost a virility symbol of the corporate world to have closed a DB scheme to new entrants, to stop further accrual, to change indexation arrangements, to move from final salary to career average or, in extremis, to close a Fund completely. In the first wave of the move away from the presence of a significant element of worker power at the workplace companies sought to de-unionise, often by contracting out many of their operations. We are now in the second wave of this process under which the workforce begins to resemble just another factor of production along with land and capital. In a high unemployment world, and despite minimum wage and other protecting legislation, employers will feel increasingly empowered to reduce costs by offering lower benefits. The major changes to pension arrangements for so many are just part of this seemingly unstoppable trend and it is happening at a time when those in Government, the Media and in political parties and the trades unions are fighting other bigger battles.

The chilling prospects for retirees of the future

We find ourselves in a world of unparalleled uncertainty – a world in which all too many of the old assumptions no longer apply. We cannot guarantee Growth or employment or probably anything like the welfare benefits that we have enjoyed for more than sixty years. Many on the Right are relishing the commercial opportunities of what they see as the “post-welfare” world in Europe. These people expect most European states to be unable or unwilling to have the public sector active or the sole provider in traditional areas like healthcare and education. Whether this happens or not remains to be seen but it is undeniable that our economic systems are struggling to adapt to the new realities and as individuals we struggle as well. One thing is, however, abundantly clear. The old paradigm of cradle to grave care – be it from the State or (partly) from an employer is disappearing. The Welfare State is under threat as never before and the hidden agenda of many politicians, and not just Conservative ones, is to change the mix so that private enterprise does many of the things that the public sector once did. The disparity in retirement benefits between the private and public sector described in this article may mean that the pension cost advantages of privatisation as opposed to public sector provision could tip the case over in the direction of private enterprise. In the past Companies “contracted out” to save money and hassle so that they could concentrate their efforts on the added value rather than the cost side of the P&L. To offload any concern for Pensions provision from a DB into a DC scheme is more of the same.

The most suffering victims of the new economic realties are actually in the private sector. For here the logic is much less defensible than the Government’s Public sector intentions and Lord Hutton’s thoughtful proposals. In truth, it is private sector employees who are the main causalities of the fiercely market-oriented world in which we now live.

Paddy Briggs is a Member Nominated Trustee Director of the Shell Contributory Pension Fund. He writes in a personal capacity.

Learning points from the NAPF Conference

(From November 2011 “Pensions Age” magazine)

So what, from a Pension Fund Trustee perspective, were the learning points from the NAPF Conference in Manchester? I would start, perversely and slightly controversially perhaps, from a visit, as a guest of AON Hewitt, to Manchester United on the Wednesday evening. (In the photo I’m with former United stars Gary Pallister and Gary Neville – and the Premier League trophy). You did not need to be a United fan to appreciate the sheer class and management grip of what we saw at Old Trafford. The class came from the feeling that this was a brand that takes seriously the need to make its stakeholders confident that it knows what it’s doing. And the management grip was seen in the manifestation of this focus. Those at the club who organised the evening knew that our host (and their sponsor) wanted the guests to have a good time. But as we were trustees and actuaries and analysts (in the main) so this didn’t mean anything vulgar or trivial – it meant delivering a truly memorable evening where we saw the wonderful cathedral that is Old Trafford, talked with a couple of United’s recent stars and were, albeit briefly, enrolled in the Manchester United family.

The lesson from Old Trafford was surely that whatever you do you must do it well. Life might be tough, but if your core beliefs are sound and you are true to your values, you too could be a winner. I was, I admit, not instinctively supportive of Steve Webb when he strode to the podium to speak (see various articles of mine in this place!). But I have to admit that he did seem to have a grip which, whilst not of the “Red Devils” standard, was at least of decent proportions. Similarly with the excellent John Hutton, the impressive shadow Minister (new to the task) Gregg McClymont and the Pensions Regulator Chairman Michael O'Higgins. These heavies persuaded me that we do have people at the top of the Pensions world in positions that can influence the future who have the best interests of us all in mind.

There was much talk about finding common ground and working together – and that message (about teamwork) was wonderfully encapsulated in the final session of the conference when Sir Matthew Pinsent told us how Olympic Gold medals were won (and lost). One of Pinsent’s messages was about how for a team to win you need to subsume, to some extent, your individual character and personal priorities for the common good. Well done to the NAPF for finishing on this note – it was subtle and all the more impactful for that.

As a Trustee I am expected to work not as an opinionated individual (which I admit I can be) but as a team player. That’s fine. But if we seek the Pensions Fund equivalent of Olympic Gold I would argue that for a Trustee uncritically to accept the status quo, or blindly to agree with the conventional wisdoms, would be an abrogation of our duty. And at Manchester there was plenty of food for thought in this regard. Let’s take, as an example, the debate about Defined Benefit versus Defined Contribution. Overwhelmingly the view at the Conference was that DB in the Private sector is dead – or dying – and that DC in its various guises is the future. And to help us come to terms with this many speakers from the Platform encouraged us not to give voice to the slogan “DB good DC bad”. This cry, to eschew the quasi-Orwellian, was, in my view, wishful thinking. After all one of the featured selling points of “The Deal” for the Public Sector in Lord Hutton’s report was that Public sector workers would continue to have a Defined Benefit pension. If DB isn’t better, even somewhat watered down à la Hutton, then why did he stress that workers in the public sector will still be in a DB scheme?

It can be helpful to cut through the confusion caused by technical descriptions like DB, DC, Hybrid and the like. Hutton can help us through this quagmire. He says that a good pension in retirement for those below median income should deliver, taken together with the full state pension, “…more than two-thirds of pre-retirement salary…” This is a useful checkpoint for the private sector as well. In the main DB schemes still deliver this and any changes that they make should not alter their ability to continue to do so. But all too many DC schemes build in huge uncertainty about take up, investment performance and then delivery. Private sector DC schemes should have “Manchester United” level quality – which means delivering wide take up (auto-enrolment will help), robust and secure asset performance and certainty that an individual, on retirement, won’t suffer because of the vicissitudes of the investment or the annuity market. Until this happens it will still be “DB good DC bad”.

Paddy Briggs is a Member Nominated Trustee of the Shell Contributory Pension Fund. He writes in a personal capacity.

My question for Mr Webb at the NAPF Manchester Conference

And so to Manchester for this year’s NAPF Annual Conference. It will be my second after last year’s Liverpool event and I see that some of 2010’s star turns will return for a second show. Amongst them is Steve Webb the Pensions Minister who was praised in some quarters last year for actually knowing something about the subject. Compared with many of his predecessors it may well be the case that Mr Webb had a head start when he took the job – a former University Professor no less. But still engrained in my memory was Webb’s misleading statement at Liverpool that CPI is a better measure of inflation for pensioners than RPI. We all know why he said this, of course, and we are familiar with his argument that the exclusion of mortgage interest payments from the CPI does make it more appropriate as most pensioners no longer have a mortgage. But, as he should know, mortgage payments are just one component and other housing costs, notably Council Tax which most pensioners certainly do have to pay, are not in the CPI either. But the real source of irritation for me and others about Webb’s statement was summed up by Param Basi, the Technical Pensions Director at AWD Chase de Vere, who said "The argument that CPI is a more appropriate measure does not stand up when you consider that pensioner inflation is recognised as being higher than RPI anyway. This change will have a double whammy impact on pensioners’ real incomes."

For the Trustee trying to act both honourably and responsibly in these febrile times is extremely difficult. When a Government Minister makes a claim which is self-evidently disingenuous surely we should express our concern? As John White showed in the July “Pensions Age” the switch from RPI to CPI really does mean that for virtually all Fund members currently in employment their retirement pensions will be lower. And for deferred members who leave a scheme early the fact that their pension accrual will now use the CPI between the date of their leaving a scheme and the date of their retirement will lead to a very substantially lower initial pension as well. I have a personal rule of thumb to guide me in this and in other contentious Pensions matters. If the members of the Pension scheme of which I am a Trustee will be disadvantaged by any proposed changes then I’m in principle against them! This may sound a little precious, and my scheme is not doing it anyway, but were I to be a Trustee of a scheme which planned to replace RPI with CPI I’d be up in arms in protest.

David Willetts, Minister of State for Universities and Science and a speaker at last year’s NAPF Investment conference, has as the subtitle of his book “The Pinch” “How the baby boomers took their children’s future – and why they should give it back”. This is jokey (I think) but Willetts, who is currently ten years from drawing his own Pension, perhaps consciously reveals an attitude of mind that is prevalent in Government today. To paraphrase Harold Macmillan this attitude is that the baby boomers have “had it too good” and what wealth we may have accumulated over our forty or so years of employment is a legitimate target to attack for the Government as it tackles the deficit. A major component of that wealth for most of us is of course our accumulated occupational pension entitlement. So when a pensioner’s annual increase in a public sector or private Pension is switched from RPI to CPI it actually has the effect of reducing his wealth - and for many this offends against natural justice. The key point here is that the legislation is retrospective in effect. Throughout a baby boomer’s employment years he and his employer contributed on the assumption that on retirement he would have an inflation proof Pension generally linked to RPI. To change that may be legal – I am sure that the Government lawyers will have seen to that – but surely it isn’t right?

So what will be my question to Steve Webb at Manchester? It will be in two parts. First does he agree that the problem for all public and some private sector pensions is the abject failure of Pension providers to make adequate provision for the future over the comparative years of plenty in the 1990s and 2000s? Secondly given that failure is it fair to penalise present and future pensioners by significantly reducing their wealth? I might wear my “I agree with Nick” T-Shirt when I ask the question – but probably not!

Paddy Briggs is a Member Nominated Trustee of the Shell Contributory Pension Fund. He writes in a personal capacity.

Paddy Briggs

September 2011

Rethinking the Pensions paradigm

The Chinese curse is "May you live in interesting times" - and that curse seems dramatically to be with us at the moment. At the risk of stating the obvious the Pensions world is at the crossroads and we have reached that point not when there is calm in the world around us (allowing measured reflection) but when there is at best uncertainty and at worst chaos. Pensions, a subject that in the past rarely made the media at all, is currently front-page news. And yet for all the ubiquity of the coverage I have yet to see much discussion of what may eventually turn into a need for a radical redefinition of the role of the Trustee. That role could become one which includes not just the need to protect the interests of Fund members but also to monitor the moral obligation that employers have to ensure that all their employees a have properly funded retirement.

About fifteen years ago, when I was in the last quarter of my career with Shell, the company produced a helpful booklet about Pensions. This communication explained that I would enjoy a pension equal to 1/54^th of final pensionable salary for each year of service meaning that, as a long serving employee, I would have a high degree of financial security in my retirement years. The scheme was in line with most public and private sector Defined Benefit schemes in what it offered. To live on a Pension of say 70% of a final salary, revised annually in line with the Retail Price Index would be unlikely to cause too much hardship! And the then completely uncontroversial premise was that the employer has a duty of care to its employees which extended into and throughout retirement.

The situation described in the above paragraph seemed pretty much cast in stone for most European businesses until, over the past decade or so, for many schemes the foundations began to rumble. Businesses - often influenced by the very different paradigm in the United Sates - began to wonder whether they were really getting value for the pensions commitments they made to their staff. And the staff put funding their retirement even lower in their checklist of priorities than it had been in the past. Jam today became the order of the day driven by escalating property prices that meant that salary now to fund bricks and mortar became the imperative - and the future could take care of itself. So when Blue Chip companies began to close their Funds to new entrants it met with little resistance from the newly recruited. When you are 25 where you might be financially in 40 years time is not top of mind - putting yourself in a position to maximise your earnings now is the order of the day. This has led to a sort of collective apathy to the benefits of good quality pensions and it is this apathy which has led to the decline of DB pension schemes. As a consequence, as recent research has revealed, 70% of adults aged between 22 and 64 have no idea how much they are likely to retire on.

The old pensions paradigm was that saving for retirement was essential and that employers had an obligation to make contributions to pension accrual. This model may have broken down – but the reality remains that in retirement everyone needs an income stream and that the State Pension, helpful though it is, will not be sufficient for many. Government policy changes like Auto-Enrolment - along with, of course, the tax advantages attached to Pension schemes, tries still to encourage saving for pensions. But a significant minority of the population does not save at all and can expect no income other than the State Pension and perhaps welfare benefits unless they do something quickly.

In these rapidly changing circumstances could it become a part of the Trustee’s role not just to protect Fund members but also to have an overview of all employees’ interests – including those who cannot be members of a closed DB Pension scheme? This role redefinition would require Trustees to have an input into a Sponsor’s remuneration policy with a view to encouraging and enhancing elements of compensation that help employee retirement welfare – such as sharesave, tax wrappers like corporate ISAs and of course, the provision of a good DC scheme.

Paddy Briggs is a Member Nominated Trustee of the Shell Contributory Pension Fund. He writes in a personal capacity.

Pensions Fund communications in the internet age

Pensions Funds are not famous for their brand management – indeed I suspect that few would even consider that they are brands at all. But they are – and this has important implications for how they communicate - and indeed for how they behave. Obviously a Defined Benefit Pension scheme’s brand is in most cases inextricably linked to that of its sponsor - but the sponsor’s brand is not the same as the Fund’s and it is a communications challenge is to ensure that this is understood by members. Decisions taken by the Pension Fund trustees are NOT decisions taken by its sponsor and although that important distinction may not be understood by all Fund members it really needs to be.

The main challenge is for Trustees to give their Fund a distinctive identity separate from that of their sponsor. This means that they need to emphasise that the management of the Fund, and especially changes made to it, are changes taken by Trustees not changes imposed by the sponsor. In a well-run Fund with good sponsor relations this is unlikely to be a problem. But if a Fund gets into difficulties this does become much more challenging – especially if the sponsor is pushing the Trustees hard to agree to changes to the Trust Deed that will reduce its (the sponsor’s) financial liabilities or risk. Trustees have by law to act in the interest of the Pension Fund’s members but this can lead to tensions in times of difficulty - such as when a Fund is heavily in deficit and a recovery plan is in place. In the past it was much easier for a determined sponsor to push through major changes - such as a closure of a scheme to new entrants or even the stopping of further accruals for actives.

Modern communications, including social networking, gives those opposed to Pension Fund changes the opportunity to campaign effectively. For example in the British Airways pension scheme three trustees recently resigned from their Board in protest against a proposed RPI to CPI indexation change. These three ex-trustees continue their campaign in the Pensioner interest and are active in the independent “Association of British Airways Pensioners” (ABAP) where they use brand and communications techniques skilfully to fight their case. The ABAP has a website as a communications tool and they also have professional looking video clips on YouTube and pages on Facebook. The creation of a professional looking website is straightforward and costs very little. I doubt that the very good looking ABAP website at http://www.abaponline.org/ cost much to create and run but it works well. In the modern world of communications such common interest group alliances can be built and supporters can be kept informed quickly and cheaply. The ubiquity of modern communications is such that Sponsors and Pension Fund Trustees will have extra pressures on their shoulders and fewer places to hide!

Whilst activists have modern communications tools at their disposal so of course do Trustee Boards and they certainly need to respond to these changing communications realities. If it is competently done a Pension Fund can benefit from this rapidly changing communications environment and need not feel threatened by it - but to do this they first need to accept that the old ways of doing things just won’t work anymore. All communications to members need to be well designed, non-formulaic and digestible with the key facts and issues openly presented. And the style must be such that two-way communication is encouraged. The web is ideal for this and any Fund’s website should ideally include (inter alia) a forum to which members can make a contribution if they wish. The content and visual appearance of a Fund’s website, and navigation around the site, needs to be judged in the context of Internet best practice - it should be designed not just to inform but to enhance the Pension Fund’s brand and build members’ confidence in it.

The old days of Trustee Boards being perceived unquestioningly by members as acting in their interest have gone. The new reality is that a Board’s duties include that of managing the perceptions of its members - and they should also anticipate that there could be organised and professional opposition from activists to any changes that can be presented as not being in members’ interest. In these circumstances Boards need a highly professional approach to communications and the use of all of the modern brand management tools.

Paddy Briggs is a Member Nominated Trustee of the Shell Contributory Pension Fund. He writes in a personal capacity.

A time for thick skins and challenging minds

When I started work in the 1960s, and throughout most of the rest of my Shell career, the basis of my remuneration was comparatively simple. I did a job. That job had a value to the organisation expressed as a "Grade" and that Grade had a salary range attached to it. I was paid within that salary range and then if I moved to a higher graded job I was paid more. Occasionally - very occasionally - I received a modest bonus perhaps roughly equivalent to one month's salary. In addition I benefited from being part of a Defined Benefit Pension scheme to which I contributed, as did my employer. The receipts from this scheme were of course deferred until I retired and started to draw my pension - essentially this retirement benefit was remuneration deferred from my employed days. This was the traditional model common across the world of work and reflective of the then tradition of most of us having only one employer over our lifetime - and of an assumption of a duty of care on the part of the employer not just during the working years but into retirement. In the last couple of decades this model has broken down and whilst it still exists the changes in social and business attitudes of modern times have profound implications for pension fund trustees.

As I have written here before the closure of DB schemes to new entrants is in part recognition that the modern "compensation" package with, for some, its much higher and non-pensionable bonus element does not need to value pension provision so highly as in the past. It must also be true that in a period of high unemployment young people, especially graduates, are grateful for having a job offer at all - the lack of the provision of a Final Salary pension in their package is unlikely to be an issue. And for today's employers the paying of remuneration now, and with a high performance related element, seems much preferable to the creation of the long-term financial burdens that the provision of pensions for employees involves. It is also the case that the norm now is for individuals to have more than one employer over their working life - many more in most cases. Surely the norm for the future will be fully transferable money purchase pensions schemes rather than the DB (or DC for that matter) scheme based on a "single lifetime employer" assumption. So what is the Trustee role when a company decides to close a scheme to new entrants i.e. to change the basis of its compensation offer? I would argue that it is minimal. Trustees should certainly question a sponsor as to whether such a decision is in any way a weakening of the sponsor covenant. But that it about it - the Trustees duty of care is to scheme members and by definition an employee outside the scheme is not a member.

But, of course, it is not just the closure of schemes to new entrants that is underway at the moment. Take, for example, Unilever's recent decision to close its final salary DB scheme to further accruals. Although pensioners and those close to retirement age will not be affected (or will only be slightly disadvantaged) for the employee in mid career the decision must have come as a bombshell - after all this is a company that made over £5billion profit last year. As the Pensioners' Alliance Chief Executive said "This is pretty bad news for someone at Unilever who is in their mid 40s and had expected a certain level of Pension". Indeed it is! As recently as October 2010 the Chair of Trustees of the Unilever Fund said to the fund's members, in good faith I'm sure, "… it is our ongoing belief that Unilever has a strong commitment and ability to support the [Pension] Fund into the future"!

It is in circumstances like those at Unilever that the role of the Trustee becomes crucial and the need for independence of thought and attitude becomes paramount. Similarly if a Private Sector scheme decides to follow its Public Sector cousins and opt for the use of CPI rather than RPI for annual increment increases for pensioners, as some quite large schemes have done recently, the Trustee must challenge the rationale for the change and ask for alternatives to be considered. Easier said than done if you have a powerful sponsor determined to make a change.

Arguably the role of the Pension Fund Trustee has never been more important than in these febrile times. Thick skins and challenging minds required!

A Trustee’s role in a Fund’s investment strategy

A not uncommon reaction from friends when it emerged that I was a candidate to be a Pension Fund trustee was “I didn’t know that you were interested in investment, Paddy?” The implication was that the big deal for a trustee was involvement in the management of the Fund’s Asset portfolio – that’s where the action was. A couple of slightly cynical acquaintances even said when I was elected “Well that should help you sort out your personal investment portfolio” and when I said that I didn’t have such a thing they looked at me with amazement – must be the friends I keep! That maintaining and increasing fund value is a key role of a trustee I happily accept but for me to immerse myself in the minutiae of investment tactics - I don’t think so.

So what is the role of a non-professional trustee on a DB scheme’s Board with regard to investment? I think that above all it is to look at the subject from a fairly high level strategic perspective. The liability side of a Fund’s standing at any one time changes fairly slowly and is very assumption based. For example longevity and discount rate assumptions are just that – assumptions. Because they deal with future events, and because by definition the future is uncertain, they cannot be seen as factual - but all too often they can become unrealistically regarded almost as hard data. So, for example, discount rates based on bond yields can steer pension fund asset allocations towards bonds in an attempt to reduce volatility and improve the future prospects of the funding level - however this can be at the cost at the cost of potentially producing much lower long-term asset returns. The risk is that assumptions, which are very soft data, can distort asset allocations which can even lead to a delusionary perspective of the health of a fund. We all operate in the present and for some Trustees there may be a bias towards caution. If a Fund’s valuation at any one time can be seen to be more predictive of a healthier future by increasing the proportion of the liability driven element in the asset side this can be attractive to a risk-averse Trustee.

So in looking at investment strategy the Trustee does need to understand liability assumptions and not be over-influenced by them. Clearly a vehicle which locks in returns with a high degree of certainty - for example by using bonds with their dependable cash flows - can be useful for part of the portfolio. If this part of the asset base is notionally allocated to the meeting of current and short and medium term pension payment obligations that can be enticing. The rest of the fund can be allocated to investments with a longer time horizon - principally Equities in most cases. It is at this level of abstraction that I think Trustees should be operating – the principles of portfolio structuring taking due regard of the actuary’s liability forecasts. But it is worth remembering that every pound that is locked up in a liability driven investment vehicle is a pound that is not available, except at a cost, for other asset classes. There is a trade-off between on the one hand locking in returns and on the other hand keeping all the investment options open. And as is always the case the Actuary should be challenged – not to disagree with his assumptions but to request him to disagree with himself by running sensitivity analyses!

The Trustee’s role then is to avoid the detail of investment decisions, to try not to second guess the investment managers and to review performance at a fairly high level of summation. This means, ironically, that although Pensions conferences can be valuable for Trustees (more should go to them) many of the exhibition displays at these conferences by the investment community are not really for them. Trustees should not really be engaging in conversation with the earnest investment managers in their smart suits and with an impressive City addresses on their business card! What is, however, in my view firmly in the domain of the Trustee is to reflect that he is not only concerned with the metrics of the Fund’s investment but also with its integrity. The difficulties that some big name DB schemes have got into in recent years has tended to disguise the fact that most DB schemes remain adequately funded with good sponsors and reasonable prospects of discharging their liabilities over time. These funds are very significant players indeed in the world of finance and investment and they can also be a force for good in it. So for funds to invest ethically and especially to make investments in the new “social investment” asset class is something that Trustees should in principle support.

The changing role of the Trustee as DB schemes mature

Twenty years ago the Pension Fund of which I am a Trustee had 44,315 members of which 34% were Actives, 51% Pensioners and 15% Deferred members. Today the Fund’s total membership is numerically almost identical – 44,482 - but this membership is split very differently. Only 14% are Actives, 66% are Pensioners and 20% are Deferreds. Every Pension Fund is different but the trend in mature funds away from Actives to Pensioner members, of both types, is clear. In Shell in the UK the factors included a changing business model which meant a significant reduction in labour intensive business sectors and an increasing tendency to contract out areas of the business to third parties for whom there was no Pensions liability. This trend will continue and the situation where Pensioners represent close on 90% of the total membership of the Fund is not many years away. If a Defined Benefit scheme is closed to new members or closed to future accruals for its Actives (neither is currently the case for Shell) then the significance of the Pensioner membership as a percentage of the total will increase further. What are the implications for Funds, from a Trustee perspective, of this radically changing membership composition?

Trustees of mature funds, in which the number of members receiving pensions far exceed those still working, must take account of these changes both in the “hard” aspects as well as the soft. By hard I mean issues to do principally with the sponsor’s covenant and with funding ratios. When Pensions Funds were first set up in most cases on day one of the fund’s existence 100% of the membership were Actives. Gradually, of course, this changed and at some point the fund’s annual contribution receipts (Employer and Employee contributions related to Actives) became overtaken by the outgoings – the benefits paid to Pensioners. From this point on the nature of the Fund began subtly to change. No longer was the Fund primarily a tool for attracting and retaining staff. Instead it became an increasing actual or potential burden on the sponsor – there is no need to recall here the dramatic effect this had on some famous sponsors with, in some cases, the Company’s Pension Fund turning into an albatross which imperilled the whole business! The scandal of these cases was that we are not talking about an overnight event which suddenly turned a well-funded Pensions scheme into one with a hugely negative funding ratio. What we are talking about is culpable neglect on the part of Trustees who did not see the signs of a deteriorating position, or of Sponsors who didn’t do anything about it. You can model fund membership composition changes and test this on the future financial health of the Fund in “what if” scenarios – there is no excuse for Trustees who do not insist that this happens.

The “Soft” issues to do with the change in the balance between Actives, Deferreds and Pensioners include Board composition, communications and the general perspective of the fund that Trustees should have. Pensioner members will want to be able to rely on Trustees to protect their interests – not that these are especially complicated. In essence Pensioners need reassurance that their fund is being properly managed so that the income stream on which their retirement is predicated is reliable. When changes occur – for example if schemes close their doors to new members or stop further accruals for Actives – this is a good time to reassure Pensioners that their own positions are unaltered. A practical way of showing that the Trustees understand the changing nature of the Fund would be to give Pensioners greater representation on Boards. And a mature DB scheme becomes much less an element in employee compensation, and as such a responsibility of the Sponsor’s Human Resources Department, and much more takes the character of a stand-alone investment business for ex staff providing benefits to which, of course, they are fully entitled! The relationship with the sponsor also changes in a subtle way. In the past the Pension Fund’s funding by the Sponsor was a pragmatic way of keeping employees happy. Now it is a duty and a legal obligation but without any concomitant benefits of employee loyalty or staff retention. Loyal and contended staff can add to the bottom line – loyal Pensioners make no such contribution!

Trustees have a duty of care to all of their Fund’s members and must not discriminate between the member classes. But this doesn’t mean that they should be unaware of the member composition changes that are underway – many of the priorities of a closed mature fund are likely to be very different from that of a Fund with a high proportion of Actives and which is still open to new members.

A response to Mercer’s Trustee survey

A recent survey by Mercer of 119 Pension schemes and 800 trustees revealed that around one third of trustees monitor the sponsor covenant only annually - or even less frequently. The integrity of the sponsor covenant is essential and I am surprised that any trustee could believe that the job can be done without monitoring it closely. However we do need to make a distinction between having a regular (e.g. annual) process which includes an element of sponsor challenge on the one hand and the more informal but continuous “keeping an eye” on the Sponsor’s business performance and their attitude to the Pension fund on the other. In the past it seems that many funds watched their funding ratios gradually decline but were reluctant sufficiently to challenge sponsors to rectify matters. Funds do not usually go from being healthy to being in trouble overnight. An important part of the “monitoring the covenant” duty is for trustees to look closely at risk and to request the carrying out funding ratio sensitivity analyses which forecast the effect of various key variable changes – both on the investment and the liability side. For example a trustee could request that a case in which more “pessimistic” longevity assumptions are made be actuarially quantified - and then challenge the sponsor as to what their reaction would be in such circumstances? This is what I would call “active monitoring” of the covenant as opposed to the passive monitoring which some trustees may see as sufficient.

In Mercer’s survey it was also revealed that in less than half of the schemes surveyed was there formal trustee performance evaluation. In my view such evaluation is desirable – so long as it focuses not just on knowledge but also on suitability. It would be wrong to start an evaluation exercise from the assumption that the only thing that trustees need in order to be effective is to be knowledgeable on all aspects of Pension Fund management. They don’t, so long as across the Board as a whole, and including external advisors, there is sufficient knowledge. Far more important for a trustee is the need for an enquiring mind and preparedness to challenge the conventional wisdoms - trustees must not be shy retiring violets! Evaluation needs to concentrate as much on personal qualities and attitude as on pensions specific knowledge.

Another subject on which Mercer reported was that of trustee remuneration. 37% of funds pay some or all of their non-professional trustees according to the survey. As an unashamedly amateur trustee I fully accept that external professional trustees on a Board should be paid but, in my opinion, other trustees should not be remunerated. I totally disagree with Mercer’s conclusion that nominal pay (or no pay) leads to trustees being perceived as amateurs “serving for altruistic reasons”. Indeed I would go further and say that at least some trustees on any Board should be amateurs - and I see absolutely nothing wrong with altruism! I am a trustee solely for altruistic reasons – I want somehow to protect/improve the lot of my Fund’s members. That’s what I am there for and I would prefer it that I and all my fellow trustees worked entirely voluntarily. If this sounds like a pro “Big Society” argument then so be it – perhaps it is! I agree that trustees should be of the “right calibre”, as Mercer put it, but do not think this means that it is a job like any other job that people do only because of the money they can earn - nor that this pay should be linked to some spurious measure of “performance” as Mercer also seem to want.

Finally Mercer’s survey reports on the composition of Boards and reveals that 48% of schemes apply some measure of selection for trustees. Ideally I think that Boards should be as diverse as practicable and that members should have a say in who represents them. Whilst I like the concept of the expert and objective “Independent trustee” I fundamentally object to the policy that some Boards seem to have introduced that “selection” should replace “election” for all trustees. A mix between “appointed/selected” on the one hand and “elected” on the other seems desirable and this is what I am used to. Justice has to be done and to be seen to be done and to have some Trustees elected by the various member groups will help ensure that this is the case.

Paddy Briggs is a Member Nominated Trustee Director of the Shell Contributory Pension Fund. He writes in a personal capacity and the views he expresses are his own.

© Pensions Age

The role of the Elected Trustee

The Trustee Board of which I am a member has fourteen members, including the Chairman, of which seven are nominated to serve by the Sponsor and seven are elected from various member constituencies. Of the seven Company Nominated Directors four are Shell employees and three Pensioners. Of the seven Member Nominated Directors four are directly elected by the 6,600 employees in the fund and three are elected from the 38,000 Pensioner (and Deferred Pensioner) members - one indirectly and two via a ballot of all Pensioners. I mention these details to show that there is always likely to be a fair diversity of types of Trustee but also to highlight that only two of us can claim to have been chosen directly by the 85% of our Fund’s members who are pensioners – although in total six of us are pensioners and can perhaps be seen to relate closely to this community. Similarly the eight employee members perhaps naturally associate with those still in employment. In making this analysis I can hear the voices of the Pensions lawyer and the Fund’s managers over my shoulder. “You are not a delegate of the Pensioners representing them – you must at all times act in the interests of the beneficiaries as a whole”! This of course is true and forefend the thought that I should be partial to one member sub-group over another!

I have now been a Trustee for a year and can say that the Board members who are my colleagues honour to the letter their legal duty to put members interests first whatever their backgrounds and whatever “constituency” they come from. They are also collegiate with one another and whilst there are some obvious differences between, for example, the Pensioner Directors and the Employee Directors these rarely come to the surface in a negative way. It is also pleasing to see that there is no “them and us” divide between the rather senior Company Nominated employee Directors and the rest of us. I am aware that other funds are not so fortunate – one elected member of a major fund told me that he and his fellow elected members have pre-meetings before Boards to agree their position on issues and to plot together against what he called the “company apparatchiks and puppets”!

When I meet fellow Shell Pensioners at various functions I stress to them that although they elected me the law does not permit me only to argue in their interest. But I also say that, so far anyway, this has not been a problem. We have not had an issue on which a decision one way would favour employee members to the detriment of pensioner members – or vice versa - and I think that it is unlikely that we will. So generally what is in the interest of Pensioners is either also in the interest of employees or at the very least is neutral to them. Given this, and whilst I am watchful of the risks of not being even-handed, I naturally think particularly of my Pensioner constituency when matters are under discussion.

The principle that some members of Pension Fund boards should be elected is not universal and some very large Funds have Boards that only appoint and/or select their members. In my opinion if we are privileged to live in a country which has a pluralist, democratic system then election of those that govern us is a sine qua non. I would not argue that all Trustees should be elected or that those who are chosen by their peers have greater legitimacy than those who have been selected (or those for whom being a Trustee comes with their job). The key to having a successful Trustee Board is to have diversity and openness of discourse. Unlike in the formal business environment from which most Board members come there is far less hierarchy and a far greater need to reach a consensus than in a world in which the buck stops with the man in charge. So whilst elections for positions in businesses would be inconceivable elections to Trustee boards seems at the very least highly desirable. In any enterprise creative tension is healthy and I see no reason why behind the closed doors of a Trustee Board meeting there shouldn’t always be frank and fearless exchanges of views. That is more likely to come if some of the Board members have been chosen by their peers.

Paddy Briggs is a Member Nominated Trustee Director of the Shell Contributory Pension Fund. He writes in a personal capacity and the views he expresses are his own.

© Pensions Age

The Pensioner as stakeholder (2)

Many Companies have embraced the stakeholder society – at least in their public statements and their PR. As BT puts it: “For most companies the three most vital stakeholder groups are Customers, Employees and Shareholders” – most other businesses have something similar in their “Corporate Social Responsibility” statements. Some add “Local communities” to this list and others include “Suppliers” and “Government” - but I have yet to see a Company saying that its Pensioners are stakeholders. Why not?

Pensioners are, of course, former employees but do we surrender our stakeholder status when we retire – or do we just move from being a stakeholder in a company to being a stakeholder in that company’s Pension Fund? And is there more to our connection with our former employer than “just” being a beneficiary of its Pension Fund – do we have rights and responsibilities which go beyond the right to a Pension? As always I am not looking for a lawyers’ answer to this question – no doubt the law would say that once we leave the employ of an organisation we surrender any legal interest in that entity – pensions apart. What I am seeking to define is the nature of what actually is quite a complex post-employment relationship - and perhaps which goes rather deeper than many employers and Pensioners would believe.

A Defined Benefit pension, as defined in its Trust Deed, is deferred salary – essentially part of the compensation package that we enjoyed as an employee. Given this it is at least arguable that in the same way that an employer had a duty of care beyond “just” compensation when we were working they also have similar duties when we stop. An employee with problems or special needs can expect that his employer will take an interest and help. Is there any reason why this should cease on retirement? In my case Shell facilitates and funds a “Pensioners’ Association” which provides support to retired staff and in addition there is a “Shell Pensioners Benevolent Association”, a registered charity, which makes grants to pensioners in need. Finally Shell also provides a team of “Pensioner Liaison Representatives”, pensioners themselves, who call on all Shell pensioners every year and provide help to them when necessary.

If the moral principle is established that a Company has a duty to Pensioners beyond that of ensuring that the Pension Fund is funded properly, and beyond its legal obligations, where should the line be drawn? The Pensioners of any large employer are not a homogenous group – any more than they were all the same when they were employees. In the employment years benefits packages differed widely with high responsibilities and specialised skills generating far higher incomes than was the case for those in the more mundane operational jobs - and for a final salary based DB scheme the effect of this continues into retirement. But in retirement needs differ and for many there is absolutely no real guarantee that received pensions will continue to be sufficient to meet their needs. A Pensioner who retired twenty years ago on a pension for which the final salary driver was modest may find himself in real difficulties today – even allowing for the fact that the State Pension augments his occupational pension. If a mismatch between income offered and employee need had existed in a pensioner’s employment years then one way or another it would have been corrected. A Union or staff association would have pressed for increased remuneration for underpaid employees or the company itself would have realised that it needed to offer more in order to retain/attract staff. But beyond retirement this no longer applies. This is where the concept of Pensioner as stakeholder becomes useful.

The benefits provided by a Company to its stakeholders often go beyond the legal minimum. In the case of the Pensioner as stakeholder it could be argued that the Company has a particular moral duty to ensure that pensioners in need are cared for. This may include the provision of benevolence and practical and social support. But I would argue that the responsibility goes beyond this and that it includes an obligation to correct matters structurally when it can be shown that the cumulative effect of pension rises not keeping up with real pensioner inflation over time has inevitably hit hardest at older pensioners with smaller pensions. In such cases companies may need to do more. For example a one-off Pension Fund contribution by a sponsor specifically to boost the pensions of poorer pensioners, which then creates a new and more satisfactory platform on which future index-based increments will be based, could well be justified in such situations.

Paddy Briggs is a Member Nominated Trustee Director of the Shell Contributory Pension Fund. He writes in a personal capacity and the views he expresses are his own.

© Pensions Age