Extract from Business
questions
(Tiverton and Honiton) (LD):
Today we read in the press that the oil and gas company Shell will take some of
its bumper profits, creamed off the top of people's soaring
energy bills, and use it for share buy-backs. Shell plans to start a
£2.8 billion share buy-back scheme to inflate its own share
price, rather than to help tackle the climate emergency or boost
our economy. A 4% tax on share buy-backs as proposed by the
Liberal Democrats could raise about £2 billion per annum for our
public services, so could we please have a debate on share
buy-backs and the potential benefits of such a levy?
: The hon. Gentleman will
know that, on any such proposals that the Liberal Democrats wish
to put forward, they can question the Chancellor next Tuesday
when the House returns. He will also know that the Government
have done a huge amount of work with both energy companies and
their suppliers to assist in alleviating the cost-of-living
issues that households and businesses are facing.
Extracts from Commons
debate on Pension Schemes
Mr (Orkney and Shetland)
(LD):...Events have unfolded for the various pension schemes over
the last few months, and what I spoke about in January as being
particularly pertinent to the beneficiaries of the defined
benefit schemes at BP and Shell has begun to look more
like a wider course of conduct. There are significant
developments under way, not least the Government's recent
consultations, which could significantly shape the way in which
defined benefit pension schemes treat their beneficiaries in the
future.
Although I initially thought that I was dealing with a couple of
oil companies, I now see that it is a range of different
companies. Yesterday I read an alarming brief from the pensioners
of Hewlett-Packard. It is pretty clear that, as this area of
pension policy develops, an ever larger number of large
corporates will take the same path as BP and Shell Ultimately, it
will be our constituents, as beneficiaries, who lose out if we
get it wrong and if these companies are allowed to do as they
wish, rather than as they ought, on the position of their
pensioners...
I will not rehearse what I said about the decision of
BP, Shell and others not to
pay a discretionary increase, which mattered significantly to
their pensioners at a time when inflation was running north of
11%. However, it is worth reminding the House that a fundamental
point of fairness is at stake here. When one is past retirement
age, one no longer has the choices one has when one is of working
age. If someone in employment is unhappy with the money they get
for the work they do, they can look around and find another job,
or they may choose to retrain and do something else more
profitable. Once someone is of retirement age, they no longer
have that choice and flexibility, which is why it has long been
established as a matter of public policy that the beneficiaries
of pension schemes require protection. After all, this is simply
deferred income, with our being paid later, after we have stopped
working, for the service we have done. It is a fundamental aspect
of that protection that it should take as its starting point the
undertakings that were given.
At BP and Shell and I do not
doubt ExxonMobil, people were given vigorous encouragement to
join pension schemes and invest in them. They were given
undertakings at the time that one advantage of a big pension
scheme at a company such as that was that they would later in
life have an income that was protected against inflation. So a
question of good faith is at play here.
I have no doubt that for many of the big corporates, the BPs,
Shells, Hewlett-Packards and so on, the possibility of paying
money to those who are no longer economically active and
contributing to their business is tiresome and inconvenient. I
never cease to be amazed by the extent to which those at the top
of these big corporates seem to think that somehow the corporates
are as big as they are simply because of the role that they have
played. They do not seem to understand that they are the
inheritors of businesses that were built by others, who are now
among those who would be the pension beneficiaries. If one is to
stand on the shoulders of others, it is always good to respect
the fact that one enjoys the view one has because of the
shoulders on which one stands. I am sorry to say that that seems
to have been forgotten in the boardrooms of too many of our large
corporates.
I have expressed these concerns about BP, in particular, before.
I remind the House that I have a large number of BP pensioners in
my constituency, because for many years BP operated the oil
terminal at Sullom Voe. It was a good employer and we valued its
presence in the community for many decades. I am concerned now to
see that BP pension fund trustees with a collective 94 years of
membership of the fund have been replaced with four with precious
little involvement, two of whom are citizens of the United
States. Since we last debated this issue, both Shell and BP have again
refused any discretionary increase to their beneficiaries—in
essence, they are doubling down.
The briefing I have received from the Shell Pensions Group is
of particular concern. As it is crafted succinctly and concisely,
I shall, with your indulgence, Madam Deputy Speaker, read it into
the record. It says:
Shell has imposed this
benefits cut upon its pensioners during a period when:
the Fund was in healthy surplus and well able to afford full cost
of living increases without call upon Shell's sponsor covenant;
and
Shell, its shareholders and senior executives benefited hugely
from the same energy crisis that was already causing their
pensioners extremely high rises in their cost of living.”
The Shell Pensions Group
has done considerable and detailed research on that point. From
the actuarial reports and the scheme's accounts, it concludes
that
“during the same period, instead of a balanced approach using
about 25% of the surplus (as quoted by Shell as
necessary for a full cost of living increase) to the immediate
benefit of the 93% of members whose pensions are currently
deferred or in payment, the Trustee has largely opted to
dissipate the surplus by massively accelerating completion of its
Low Reliance (upon Shell investment
transition plan. This fifteen year plan was commenced in 2018,
but with the acceleration opportunity provided by the surplus
arising from increased bond deals, it was almost fully completed
in 2022.”
That is where the money that could have funded the pension
increases has gone. It has gone into accelerating a programme
that was supposed to take 15 years and instead has been concluded
in four years.
I am afraid to say to the Minister that the Shell Pensions Group
also has strong concerns about the consultation that he launched
on 24 February, under the heading “Options for Defined Benefit
schemes”. It says:
“We are therefore aghast that…the Pension Minister opened a new
consultation…with a view to identifying ways of encouraging and
enabling sponsors of DB schemes to claw back surpluses. We feel
that the foregoing demonstrates that sponsors require no
assistance or encouragement in that and on the contrary, stronger
measures are necessary to hold the surplus for the benefit of the
beneficiaries, particularly in contributory schemes in which they
have invested their own money by way of deferred salary and
additional voluntary contributions.”
The Select Committee report has given careful consideration to
this matter. Along with most of those to whom I speak, I am well
pleased with the recommendations of the report in that
regard.
BP also continues to double down. There continues to be no formal
engagement with the pensioners' group—what the previous chief
executive officer called “the zero- engagement strategy”. I would
have loved to have been at BP's annual general meeting this year;
by all accounts, it sounds to have been a heated affair. The
analysis published recently in The Times by its financial editor
ties in very well what BP is doing with the concerns we should
all have about the future direction of travel. In a recent
article, the financial editor wrote:
“Everyone at least pays lip service to the notion that meeting
pension promises in full is paramount. No surplus should be
touched without a meaty asset buffer being built up. No sponsor
should be allowed to extract cash without showing a strong
covenant—providing reassurance that it will still be around to
pick up the pieces if things go wrong.
But even those safeguards aren't nearly enough to fully protect
members, according to a trenchantly argued submission from a
ginger group of BP pension fund members, the BP Pensioners Group.
Attempts by employers to evade their promises will be “legion” it
says; they will “trim back or remove any benefit possible”; they
will “abuse loopholes” in the rules to maximise their clawbacks.
They will push hard to minimise what members should “reasonably
expect”.
It also warned that the prospect of executive bonuses being
fattened up by success in grabbing back surpluses will be far
more potent in driving company behaviour than any residual
feeling of responsibility to ensure schemes pay every last penny
of promised pensions. The message is that it could all end up in
an unseemly scramble.”
The article continues:
“The bitter dispute with BP is just “a foretaste” of how
relations between many other DB pension fund members and their
former employers are going to sour if the surplus-grabbing
reforms are pushed through without proper safeguards. The old
world is dead.”
That sums up very well the tension between surplus clawback and
the need to honour the commitments that were given to
beneficiaries. We see so often this mismatch, which affects the
ability of the citizen to take on the big corporate, or the big
public body. This is just the private sector version of what
happened to the sub-postmasters. The Post Office was big enough,
strong enough and well enough connected simply to ignore the
sub-postmasters, to lie about them, to straight-bat their
concerns, and to deny what was obvious to everyone until they
could no longer manage to do so.
What is the agenda here, and ultimately who will be the winners
and the losers? It is pretty obvious that the pensioners will not
be the winners. We should consider the reputational damage that
the issue is doing to BP and Shell Obviously,
any oil and gas company these days has to be a fairly
thick-skinned corporate entity, but still I ask myself why they
simply refuse to engage. Why are they denying the very obvious
and clear justice of the case being put forward by their own
pensioners groups? I find it difficult to see any explanation
other than that the funds are being fattened up before being
hived off to insurance companies or others.
The Times—The Thunderer—is not the only news outlet to have
reported on BP pensions recently. On 29 March 2024, the PR
Newswire reported a case in Houston, Texas, in which the judge
told BP that it must reform its pension plan, following an
eight-year legal battle over pension losses. Again, we are
dealing with big corporates, which have deep pockets and can see
off the attention of the small pension beneficiaries. PR Newswire
said:
“A group of Standard Oil of Ohio (Sohio) oil workers received a
winning decision…after an eight-year legal battle with BP
Corporation North America, Inc. (BP), in a huge victory for oil
workers, with a federal judge ruling that BP”—
this is worth paying attention to—
“‘committed fraud or similarly inequitable conduct' in how it
announced a pension formula change more than 30 years ago…Federal
judge George C. Hanks, Jr., ruled that BP violated the Employee
Retirement Income Security Act (ERISA) of 1974 and
plaintiffs”—
that is, the workers—
“are entitled to appropriate redress by ‘equitable relief.' The
court ruled plaintiffs demonstrated BP committed multiple
violations of ERISA in its communications to its employees…The
Sohio retirees maintained, since 1989, BP had insisted the new
formula would provide benefits as good as or better than the old
formula. The judge agreed and found there is a pension shortfall
for many.”
It is worth reflecting exactly what the people who took that case
were motivated by: the work that they had done for BP. The
article continues:
“Fritz Guenther, lead plaintiff, dedicated his work life to BP
often in dangerous conditions on the North Slope of Alaska. He
worked two weeks on, two weeks off for years relying on BP's
representations regarding his retirement. While he is still
healthy, he says many of his colleagues face health issues, while
others still have died within the past eight years. The retirees'
legal fight is taking place against a backdrop of a retirement
wave nationwide, with the US Census Bureau estimating that one in
five Americans will reach the age 65 or older by 2030.”
That was the nature of the commitment that BP employees in
America gave to the company, and it is a measure of the moral
bankruptcy that appears to be at the heart of that corporate that
it could not see that payback was necessary for these people in
their retirement.
I will touch briefly on the Work and Pensions Committee report to
which I have repaired. I apologise for doing something that I was
always told not to do as a law student: I will read from the
rubric, rather than the substance of the report. I welcome what
the Committee said about scheme surplus and governance. In
particular, the executive summary says:
“Many schemes are much closer than they expected to being able to
enter a buy-out arrangement with an insurer to secure scheme
benefits.”
I touched on that earlier. The Committee was also right to talk
about the various reasons why the flexibility would be
advantageous to wider interests. There is a balance to be struck
between the company, the beneficiary, and the national interest,
in relation to the money being available for investment. That
balance has to be properly struck, and it will inevitably slew
towards the interests of Government and corporate interests,
unless the necessary protections are put in place.
The Committee also observed:
“We note the current consultation on the level of funding a
scheme would need to have for surplus extraction to be an option.
However, strong governance will also be essential. We recommend
that DWP should conduct an assessment of the regulatory and
governance framework that would be needed to ensure member
benefits are safe and take steps to mitigate the risks before
proceeding.”
In this brave new world for defined benefit pensions, that is a
warning that the Minister and the Government would do well to
take onboard. If they do not, I am afraid that the losers at the
end of the day will be our constituents, the beneficiaries of
such pension schemes. We will look back in years to come, and we
will see that the cases of BP, Shell
ExxonMobil, Hewlett-Packard and others are simply the canaries in
the coalmine.
Sir (East Ham) (Lab):...The right
hon. Gentleman highlighted this afternoon, as he has
previously—he mentioned his debate in Westminster Hall—that
members of some defined benefit pension schemes, such as those of
BP and Shell and I think
ExxonMobil, as the right hon. Member for New Forest East (Sir
) pointed out, have in recent
years not received the discretionary increases that they used to.
We looked at that issue in the Select Committee report on defined
benefit pension schemes, which we published on 26 March. We took
oral evidence from the BP Pensioner Group, and we also heard from
the HP Pension Association—the right hon. Member for Orkney and
Shetland also mentioned that company. The association represents
people who previously worked for the computer company Digital,
which Hewlett-Packard acquired. Much of those people's working
lives was before 1997. There was no general requirement to uprate
pensions in payment before 1997, and our witness told us that
Hewlett-Packard pensioners had received only three discretionary
increases to pre-1997 benefits, amounting to 5% in total, since
2002, which is just over 20 years....
(Ayr, Carrick and Cumnock)
(SNP):...The right hon. Member for Orkney and Shetland mentioned
pension schemes including those of Shell and BP, but I
want to focus on the Hewlett Packard Enterprise pension scheme,
and a decision that directly affects more than 1,500 people
living in my constituency and in neighbouring constituencies. I
speak on behalf of my constituent Patricia Kennedy, as well as
9,625 members of the Hewlett Packard Enterprise UK pension
scheme, which includes more than 4,000 members of the Hewlett
Packard Pension Association. These are people with an average of
20 years' loyal service, the bulk of it pre-1997. They were
promised a good pension. They expected a “fair deal” from a
world-leading corporation that they helped to build, but now find
themselves left with a “raw deal”. In general, their pensions now
have less than 70% of the expected buying power...
(Lewisham, Deptford) (Lab):
I congratulate the right hon. Member for Orkney and Shetland (Mr
Carmichael) on securing and opening this debate. He has spoken
passionately about this subject in the House before, especially
in relation to the BP, Shell and other oil and gas
schemes, and about the way that decisions are being made because
of concerns other than the best interests of scheme members. I
admire his knowledge and determination to support those who have
been affected by adverse changes to their pension schemes...
Mr :...The function and
purpose of debates such as this is to ensure that the concerns of
our constituents are heard in Government; the presence of the
Minister on the Front Bench is an important symbol of that. The
companies to which reference has been made, BP, Shell ExxonMobil,
Hewlett-Packard and Allied Steel and Wire, are some of the best
known high street names in the country, and I hope that what we
have heard in this debate will be heard also in the boardrooms of
those and other companies. The people who run those companies
should understand that we are watching what they are doing, that
they have an obligation to treat their former workers and their
pensioners fairly and that, if they do not have it within
themselves to do that, we in Parliament and in Government will
make sure that they have to...
To read the whole debate, OPEN HERE
