DORMAN LONG (PENSIONERS) (Hansard, 18 December 1972)

§ Mr. John Sutcliffe (Middlesbrough, West)
I am grateful for this opportunity to bring the plight of Dorman Long pensioners to the attention of the House. Inflation continues at a high level. It is important that we should be satisfied that the British Steel Corporation is making sufficient provision to protect the standard of living of its pensioners. This is of concern not only to present and past steel employees but to the public generally who, as taxpayers, provide the money for and, through the Government, are sole shareholders in the corporation.
More particularly, the public will want to be assured that the corporation is administering the Dorman Long pension fund exclusively in the best interests of the Dorman Long pensioners. Members of the Dorman Long scheme who retired on or before nationalisation are in particularly difficult circumstances. Their pensions are small, a reflection of the comparatively low earnings they received during their working lives. They benefit far less from percentage increases than do pensioners with current higher pensionable incomes. Dorman Long pensioners are losing on all sides. They are not just a small group of retired executives. The Dorman Long pension scheme covered administrative, clerical and technical staff. It also covered foremen and weekly-paid employees. In April 1968, the last date for which the figures are available, there were 3,489 members still contributing, and 626 drawing pensions averaging £310 a year.
Dorman Long was one of the private companies taken over by the BSC. It was one of the few to have a self-invested rather than an insured pension fund. The fund is therefore capable of 1082 earning a profit to supplement pensions, and its trust deed provides for periodic actuarial valuation at intervals of not more than five years and for distribution of whatever surpluses may exist. The latest valuation revealed a £1 million surplus. This made possible a 2½ per cent. per annum increment to pensions.
It should be made clear at the start that that award, effective as of 1st July 1970, was made simply in accordance with the rules for distributing the profits of the self-invested fund. No doubt it was marginally useful in offsetting inflation, but the award was not made for that purpose. It being quickly eroded at the then current rate of inflation, approaching 10 per cent., the question arose as to the date of the next valuation. Five years seemed too long an interval, and the corporation was asked whether reviews could be more frequent, especially as it was pointed out that other companies, public and private, had injected money into pension schemes to meet the erosion they had suffered from inflation.
In the light of this I suggested to Dr. Finniston, the corporation's deputy chairman, in a letter dated 9th October 1971, that: The corporation will be defaulting on its obligations to all its former employees and those of its constituent companies unless a serious attempt is made to pay to pensioners the sums they were originally intended to receive, that is, amounts equivalent in purchasing power to their original pensions. The arguments for so doing are particularly strong in the case of the Dorman Long group, which took action in both 1947 and 1957 to counteract the impact of inflation on pensions, even though the rise in prices during those two periods was in no way comparable with that recently experienced. The corporation's reaction was extraordinary. It announced a general 3 per cent. increase in pensions and denied all but half of 1 per cent. of it to members of the Dorman Long scheme. The 2½ per cent increase previously awarded to Dorman Long pensioners was to be deducted from the 3 per cent. that they would otherwise have received from the corporation.
I wrote to Lord Melchett on 6th December 1971 saying that it seemed particularly unjust that the successful management of this pension fund should be regarded as a reason for reducing BSC's contribution. I went on to suggest that the chairman should consider 1083 granting the full increase irrespective of increases awarded after retirement by the trustees of former pension schemes or by former companies.
To that letter Lord Melchett replied as follows on 17th December: As the corporation is now a single business it should not differentiate between employees notwithstanding the differing practice in the past of the various companies and funds. As a reason for the corporation chairman's decision this is absurdly unsatisfactory. It supported not his argument but mine. The way not to differentiate between employees is for the corporation's contribution to be the same for all, not 3 per cent. for some and a derisory ½per cent. for others.
I need not dwell on the sense of injustice or the bitterness felt by Darman Long pensioners, but it can be gauged from the terms of the letter they received on 13th July 1970 which announced their 2½ per cent. increment. The letter explicitly stated: It should be emphasised that the above increases do not arise from a review by the BSC of the adequacy of existing pensions. They are in fact as explained above a distribution of surplus arising from the fund's continuing to invest members' and employer's contributions over past years. Despite this letter and despite the 7 per cent. salary increase backdated to 1st January 1972 which the corporation staff have received, Lord Melchett has refused to restore equity by granting Dorman Long pensioners the full 3 per cent., the 3 per cent. they had confidently expected.
One is forced to contrast this situation with the pressure behind the disappointed pensioners who expected the Christmas bonus and who now, on account of that expectation and political pressure, are not to be deprived of it after all. The treatment of Dorman Long pensioners is quite indefensible. Considered in the light of the way similar pension schemes are handled by other nationalised industries, it is scandalous. British Railways, the National Coal Board and the Electricity and Gas Councils all review their staff pensions annually and they grant increases in line with the Pensions (Increase) Act. These increases are substantial, 18 per cent. in 1971 alone. They are granted to all pensioners under the jurisdiction of those bodies, not just to members of the nationalised industries' own scheme 1084 but to members of the private schemes inherited on nationalisation. So it may be said that in its present pensions policy the British Steel Corporation is totally out of step with other nationalised industries.
Thanks to the built-in annual reviews, an employee of the Electricity Council, for example, who retired in 1948 with a pension of £100 a year would now be getting £282.58, almost three times the original amount. The pension of a Dorman Long fund pensioner who retired in 1948 has less than doubled and that of a Dorman Long pensioner who retired in 1957 has increased by less than half in 14 years. That is the discrepancy.
The history of the Dorman Long fund prior to nationalisation makes it even more glaring, because the private company acted to increase pensions. For example, in 1948 the existing insured scheme was replaced by a self-invested one able at that time to offset inflation through its earnings. In 1957 the per annum pension rate for each year's pensionable service was increased from one-one hundred and twentieth to one-seventieth of pensionable salary, which in turn was increased by £30. Had nationalisation not intervened and put off the 1968 review, which did not take place until 1970, there can be no doubt whatever that this private company which acted in 1948 and 1957 would have acted again 10 years later to pump money into its pension fund in order to maintain and restore the original value of its pensions, as ICI and other private companies have regularly done over the years.
The bleak fact is that Dorman Long pensioners have received all told a 3 per cent. increment since 1957, made up of the 2½ per cent. distribution in 1970, in no way connected with the adequacy of pensions, and the niggardly ½ per cent. in 1971, being the corporation's contribution to offset the effects of 14 years of inflation. Yet between 1958 and 1963 the Dorman Long pension fund increased by £2,270,000 and amounted to £5,148,068 by April 1968, when the interest reserve fund contained £633,606. Since then the position is unclear.
I can get no specific information about how the fund has fared in the last four and a half years. I only know that the 1970 quinquennial valuation, a valuation due in 1968, revealed a surplus of over. 1085 £1 million, making possible the 2½ per cent, increment. I do not know exactly how big that surplus was or just how it was distributed. This is important because according to clause 8 in the Dorman Long trust deed there are five separate uses to which profit can be put. While the increasing of benefits is fifth on the list it is a use to which reserve fund surpluses can also be put, according to a further provision of the deed.
I am therefore surprised that the increments received by pensioners from the fund have been so small. There is concern about the administration of the fund, which is justified because specific information is apparently not available. We know neither the current amount in Dorman Long or BSC pension funds nor the average age of the pensioners. Nor do we know whether the corporation's recent 3 per cent. award was paid out of the corporation's own pension fund surplus or out of corporation moneys generally. The source of the ½ per cent. is also unclear. The amount of the½per cent. is insignificant. What is significant about it is the fact that this insultingly small ½ per cent. represents an acknowledgement of the corporation's responsibility to increase Dorman Long pensions. Unfortunately that responsibility or moral obligation inherited from the private company to do all in its power to maintain the real value of the pension the corporation has conspicuously failed to carry out.
This is not just a matter of justice for those who have contributed to a private company fund that the private company can no longer protect and supplement. The issue is the equitable use of both private and public funds for the protection of pensioners. My right hon. Friend the Secretary of State cannot just stand aside. Dorman Long pensioners have watched, and go on watching, their standard of living being remorselessly eroded. The only guarantee they and the general body of pensioners have is that their funds will be valued at least once every five years. They have no assurance that they will get any increase at all, far less that increases will follow the cost of living or give them the purchasing power they were originally intended to have.
Contrast this with the Government's promise to review old-age pensions every year and their determination at the very 1086 least to maintain their purchasing power; compare this with the annual reviews by other nationalised industries and their pension increases linked to the cost of living. I ask the House, where is the ability of these pensioners—victims of multiplying injustices—to appeal from the corporation's arbitrary decisions, except through Parliament and to the Minister? I hope that my right hon. Friend will agree to look into this matter and that, having done so, he will make representations to and use his influence with the corporation to achieve at least these minimum objectives: that the corporation should provide information, so far unavailable, about the administration of its own and the Dorman Long pension scheme, that it guarantees an annual review and gives some assurance of realistic increments linked to the cost of living.
I would like to believe that Lord Melchett will be persuaded, as he has not so far been persuaded by any of my protestations over the past year or more, that Dorman Long pensioners merit equal treatment with that of other corporation pensioners, which means awarding them the full 3 per cent. arising from the one and only review by the corporation to date of the adequacy of its existing pensions.

§ The Under-Secretary of State for Trade and Industry (Mr. Peter Emery)
Obviously, I welcome the opportunity of responding to the questions which have been raised by my hon. Friend the Member for Middlesbrough, West (Mr. Sutcliffe) in propounding a strong argument for certain of his constituents, although I must say that he does not do his case any good by some of the flowery language he used, suggesting that the plight of Dorman Long pensioners is that much worse than or different from that of many other pensioners within the British Steel Corporation. The idea of "multiplying injustices", which I think was the term my hon. Friend used, is not really in correspondence with the facts of the case. Let me, therefore, bring the attention of the House to what I see these facts to be.
Basically, when the steel industry was nationalised the corporation inherited some 110 pension schemes of various ages and various sizes. The corporation established its own staff superannuation 1087 scheme in 1969 and has since then assimilated all those company staff pension schemes. A similar scheme for manual workers is about to be launched. Therefore, the Dorman Long pension scheme is in exactly the same sort of state as that of those other pension schemes within the steel industry.
Many of us get fairly worked up by and boggle at the complexity of pension schemes when they are simple and affect only ourselves. The corporation had to gather together and study in detail all those 110 schemes and work out for each individual member how much credit in respect of his past service he would be entitled to under the corporation's new scheme, if he wished to become fully subject to the corporation's scheme. If he did not, he could elect to continue to be subject to the terms and conditions of his former scheme as far as they related to contributions and benefits. The Dorman Long employees had that opportunity and it was up to them how they opted.
It is important to realise what are the statutory responsibilities, because I can answer for them rather than for the management of the schemes, which must be the responsibility of the BSC. Paragraph 40(2) of Schedule 4 to the Iron and Steel Act 1967 states that the regulations shall be so framed as to secure that persons having pension rights under the scheme, whether such persons as are mentioned in paragraph (a) of the preceding subsection or not, are not placed in any worse position by reason of the amendment, repeal, revocation, transfer, extinguishment or winding up". That provision sets out to ensure that no person in the new scheme shall be worse off because of the BSC's new overall pension scheme than he would have been if he had stayed with his own pension rights under one of the 110 schemes which existed before the BSC took them over.
Most of the members favoured the terms of the BSC scheme, because less than 7 per cent of nearly 42,000 members elected to continue with their old rights of contributions and benefits. The Dorman Long fund members voted in similar proportions. Of the 3,500 members, over 3,200 elected for the corporation's scheme.
1088 During this operation the corporation's pensions officers toured the country explaining the transfer arrangements to the members and making themselves available to answer questions. No doubt it was this long and careful groundwork that led to the fairly smooth assimilation of these many diverse schemes. In the case of the Dorman Long Fund—I take it that my hon. Friend is referring also to the Redpath Brown and Company fund and the Teesside Bridge and Engineering Company Fund, all of which were transferred with effect from 1st May 1971—the usual transfer procedure was followed. The corporation gave the Department's officials details of the schemes to be transferred and an assurance that all the members of those schemes had elected for assimilation. Regulations were drafted and circulated to the appropriate steel unions and the BSC for comment. In the absence of any objections, the Minister for Industry made the regulations, which were subject to annulment by either House.
The corporation and my Department's officials have always recognised that the existing pensioners of the former companies did not have the same opportunity as had contributing members to express their views on the transfers, but their position was not materially affected by the transfers. The source of payment has been changed from the local company pensions office to the BSC central pensions office in Glasgow.
Before the transfer of the three Dorman Long funds took place, an independent actuary valued them. With BSC agreement, the accumulated surplus was applied to securing for all the existing pensioners an increase in their pensions at the rate of 2½ per cent. That was for each year since their retirement and not, as I think my hon. Friend suggested, a once-and-for-all payment.

§ Mr. Sutcliffe
No, I did not suggest that.

§ Mr. Emery
I am sorry; I misunderstood my hon. Friend. That 2½ per cent. was for each year since retirement. Subsequently, the BSC decided to supplement all former company staff pension schemes by 3 per cent. for each year since retirement, but less any increase already given by the former scheme or company. Because the surplus from their 1089 own scheme had already enabled an increase to be paid, the Dorman Long pensioners received only a balance of an increase of ½ per cent. a year. This means that over all the schemes there was a 3 per cent. increase.
It can be argued, and I accept the argument, that people in those schemes have benefited to a greater extent than Dorman Long employees or pensioners, because under their own schemes they would not have obtained 2½ per cent. but have now obtained a full 3 per cent., which is the same as the sum given to the Dorman Long pensioners. The BSC wanted to ensure that the least-well-oft section of pensioners within the corporation had been able to benefit to the same extent as anybody else in the scheme. All are as well off and nobody is worse off than if he had not been part of the BSC scheme.
This may seem unfair to certain Dorman Long pensioners who were members of a self-administered scheme which had accumulated a surplus. However, quite a number of pensioners have been given small increases under their own schemes and the corporation's purpose in supplementing all pensions was to provide an immediate increase in all pensions to offset increases in the cost of living which had taken place since the former company's scheme pensioners had retired. It was therefore considered appropriate—and I can understand this argument—to provide this supplement to account for any increase received since retirement.

§ Mr. Sutcliffe
Is not this dissipating throughout the pension funds of the corporation the particular surplus for 1090 distribution under the Dorman Long Fund pension scheme? Is it right that it should be dissipated throughout the corporation at the arbitrary will of the BSC? Does the 3 per cent. granted to everybody in the corporation represent a review of the adequacy of the pension, or was it a distribution of surplus earnings?

§ Mr. Emery
My hon. Friend must get the situation right. There is no dissipation. In fact, the 2½ per cent. which could have been distributed because of the Dorman Long surplus has in fact been distributed. There are other pensioners in other schemes who have got more, not because of the balances in their own scheme but because the BSC decided, rightly or wrongly, that there should be an overall 3 per cent. Therefore, the only argument that seems to me to be justified is that Dorman Long pensioners should have received more, but if they had received more there would have been an inequity between one section of pensioners in Dorman Long and others in other parts of the steel industry.
I, as Minister, am not responsible for the management of this scheme. This must be part of the BSC management decision. It was its decision that this should go the way it did. Therefore, the Dorman Long pensioners—