Pensioners fight back over discretionary pensions increases

Last year around 150 pensioners gathered outside Hewlett Packard Enterprise’s UK head office in Reading and handed in a petition signed by 1,200 people. They were protesting at the company’s failure to put up their private pensions in line with inflation. They say they haven’t heard anything since that protest.

Some 10,000 former employees of Digital Equipment Corporation [DEC], which was taken over by Compaq which was then acquired by Hewlett Packard, are in the pension scheme, with around 60% of them currently being pensioners. That percentage is set to rise significantly in the next five years.  The defined benefit scheme gives Hewlett Packard Enterprise discretion over whether to raise the pension and in the last 20 years they have done so on just three occasions – twice by 1%  – in 2004 and 2008 – and once, in 2022, by 3% after sustained campaigning. In the period between 1999 and 2020 inflation rose by 76.53% in the UK. The last few post-Covid years have seen even higher increases.

DEC pensioners have been campaigning on the issue for over a decade and recently David Carson from the Hewlett Packard Pension Association [HPPA] gave evidence before the Pensions Select Committee inquiry into defined benefit pension schemes. 

What are defined benefit schemes?

Defined benefit schemes are employer schemes which promise to pay pension benefits based on salary and length of service. They were common in the late 20th century, but have since fallen into decline. Nevertheless, there are currently estimated to be over 5,100 in the UK. The Pensions Act 1995 introduced legislation creating limited price indexation for post-1997 pensions, but it was not made mandatory for rights accrued before 1997. Nevertheless, a Government research briefing says many schemes applied some inflation protection to pensions in payment on a voluntary basis and many applied limited price indexation in 1997 retrospectively to all service.

A choice between living or existing

Martin Ranwell was one of the Hewlett Packard protesters. He joined DEC in 1978 as a finance manager and stayed until 1994. Now 85, he is still working five days a week as an accountant and tax consultant in Devon, in large part due to the low level of his pension. “The choice for me was either existing or living. I prefer to live rather than sitting at home worried about turning the light on,” he says. 

Martin earns around £17K a year in pension and has calculated that he would be on £27K now if his pension had kept up with inflation. Over the last 20 years he estimates that he has lost more than £100K in pension income. He blames “corporate greed” for his predicament and points to reports that Hewlett Packard Enterprise’s annual net income for 2023 was $2.025B, a 133.29% increase from 2022. “It feels like they have exploited a loophole in the 1995 Pensions Act,” he states.

Martin is extremely angry about his situation and what he sees as the “cosy relationship” between Hewlett Packard and the Government. Hewlett Packard Enterprise has several lucrative contracts with the UK Government. Martin even wrote to the Crown Commercial Services, saying that he believes Hewlett Packard’s pensions record is in breach of its code of conduct for suppliers. He says he has hit a brick wall each time he has tried to highlight the issue, with everyone saying it is someone else’s responsibility. 

Other US multinationals are also in the frame for their treatment of their UK pensioners. They include Amex and Foster Wheeler. Most recently KPMG has been in the news in connection with allegations that it has effectively frozen the pensions of some of its former employees. Pension associations have, however, had to do much of the digging themselves to connect the dots and try to get some sense of the scale of the problem.

Pensioner action

The HPPA has been trying to get its voice heard for many years and, in addition to the Pensions Select Committee consultation it has also contributed to The Pensions Regulator’s consultation on defined benefits schemes; contacted the pensions ombudsman; contacted several MPs; and pressed for pensions reform and changes to codes of practice that embed ethical behaviour. It meets the HP trustees once a year, but has made no progress and says it is Hewlett Packard that has all the power and that it refuses to engage with the pensioners.  

Contacted by workingwise.co.uk about how it justifies the pension increases for former DEC employees, the firm sent this statement: “HPE is committed to satisfying all of its responsibilities to both current and former team members. The decision on whether to grant discretionary increases to relevant pensioners is given careful consideration and is made based on a number of factors. It is reviewed on an annual basis.”

There was no reply to a question about what those factors might be, which Carson says is “the standard response the company gives”.

He says that before HPE took over the pension the annual discretionary increases were around 97% of the level of the Retail Price Index. They then plummeted to just over 3% of the RPI from 2002 onwards. The HPPA says the average pension DEC workers are getting is around £9.4K. Pensions will depend on length of service and other factors, but that figure compares with Department for Work & Pensions estimates that the average private pensioner receives around £17.2K each year after taxes and housing costs (excluding their State Pension).

A betrayal of trust

Jenni McCartney is a member of the HPPA. She says that, while she is not as badly affected because she has pensions from other employers, she hears of people who are really suffering, particularly in the last two years with the increase in the cost of living. Many feel betrayed, she says.

They include David Gay who is 74 and worked at DEC for 10 years from 1986 in marketing and sales. He has diabetes and has suffered a heart attack. Like Martin, he is still working – for a video production company – because he cannot afford to retire. His pension from DEC is £5.4K a year. He says the way the defined benefit scheme that he opted into was described at the time made it seem very attractive. He expected that it would be a good scheme because he said DEC was a trusted employer and had been making good profits. David, from the Midlands, is renting and thinks he will not be able to stop working. He says some of his former colleagues are dead, but that the problem carries over to their surviving families. 

Carson says the HP case has big implications for the UK in terms of pensioner poverty. The HPPA estimates that up to half a million pensioners may be at the mercy of discretionary pension increases. “We want the Government to put the spotlight on corporate behaviour when it comes to these kinds of pension schemes. If they did an analysis of the 50 largest pension schemes that would give some meaningful data about the scale of the problem,” he says. “Our case could be just the tip of the iceberg. No-one knows what is under the surface.”

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