Saturday, 1 January 2011

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?PA Jan 11

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.

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