Widows' Benefits (Hansard, 3 February 2004)

§ Mr. Colin Challen (Morley and Rothwell) (Lab)

I apologise in advance if my voice gets croaky because am halfway through a heavy cold. If I get into a fit of coughing, I shall crave your indulgence, Mr. Cook.

I thank Mr. Speaker for giving me the opportunity to have this debate, which deals with a tragic and infuriating case. My constituent, Mrs. Diane Johnson, approached me last year to help her win a pension, which she believes is her due. Mrs. Johnson's husband, Mark, worked for a company called Carlton Cards for 10 years, but in 2001 was diagnosed with cancer. On 2 August 2002, Mr. Johnson died. For eight years prior to his death, Mr. Johnson had been paying into the AG pension plan and reasonably expected that, should he die in service, his widow would receive a lump sum calculated on his salary in addition to a widow's pension.

However, earlier in 2002 the trustees of the pension plan changed its terms, effectively removing any rights for a widow to claim a pension. The new rule became effective on 1 August 2002, one day before Mr. Johnson's death. The decision to change the rule was not communicated to Mrs. Johnson. She only received, three weeks after her husband's death, a copy of an internal letter sent to employees.

Mrs. Johnson has since spent a lot of time on the problem and has spent much money on legal fees trying to get justice. While no one could claim that the company did not have a right to change the plan, the way in which it did so without consulting the plan's members, and its attitude to Mrs. Johnson's case, show that it is bereft of any moral or ethical standing. I make a point of saying that because the parent company of Carlton Cards is American Greetings—the "AG" of the pension plan, I assume—and its mission statement says that it will adhere to the highest standards of moral and ethical conduct in dealing with our customers, suppliers, shareholders, associates and the community at large". In this context "associates" means employees. In that vein of false sincerity, its mission statement also says: American Greetings helps people everywhere express their innermost thoughts and feelings, enhance meaningful relationships and celebrate life's milestones and special occasions". That did not extend to sending Mrs. Johnson a bereavement card.

Mrs. Johnson wrote to the president of that $2 billion a year business, Mr. Morry Weiss, to seek his support for her claim. In a reply from their director of human resources, she was told: management did contact the insurance carrier and attempted to have the policy reinstated to cover you with a pension. Unfortunately the carrier was unwilling to make such an accommodation". That hardly comes as a surprise. If the company had taken such benefits off risk they would presumably have to restart paying premiums of some description to get Mrs. Johnson back on risk. The apparent act of seeking to help Mrs. Johnson was as empty and meaningless as their mission statement—a complete red herring.

239WH I have tried to contact American Greetings to advance Mrs. Johnson's case. I wrote to it on 24 November last year and received no reply. I faxed my letter to it on 6 January this year and again have had no reply. I rang the company on 21 January and was told that I would be called back. Again, I heard nothing. I take it that American Greetings sets the rules of the game for its subsidiary companies, since it was American Greetings that decided to change the plan on costs grounds. Will my hon. Friend the Minister consider intervening in this case with the American authorities to see if they can urge American Greetings to see the light and honour its much-publicised commitment to behaving morally and ethically? I know that is a long shot, but surely our American friends might listen to the pleas of their closest ally.

That set of tragic circumstances is unlikely to set a precedent—it is clearly a one-off that cannot be repeated—but if the situation is not rectified American Greetings, a company that claims to "say it best", should be exposed for the parsimonious callousness that it has displayed in Mrs. Johnson's case. She has been forced to give up her legal battle for justice because of mounting costs. She is still pursuing the matter through the Office of the Pensions Advisory Service, but the company is likely to drag that process out as long as it can.

Apart from the above request, I will not press my hon. Friend to comment on the merits of Mrs. Johnson's particular case. However, given the part of the law involved and the number of companies that are reducing their pension schemes because of various belt-tightening pressures, others may behave in the same way as American Greetings. Section 67 of the Pensions Act 1995 stipulates a duty on pension trustees to consult their members if they intend to alter their scheme. According to subsection (2) of section 67, the power to modify the scheme cannot be exercised on any occasion in a manner which would or might affect any entitlement, or accrued right, of any member of the scheme acquired before the power is exercised unless the requirements under subsection (3) are satisfied. The requirements in subsection (3) relate to the consent of the members to proposed changes.

Mrs. Johnson was not a member, but her husband was. In a complex set of interpretations of the words "entitlement", "accrued" and "contingent", the company has escaped its clear moral and ethical commitments to Mrs. Johnson. It appears that this wriggle room was created by the timing of Mr. Johnson's death. Had he died 25 hours earlier, Mrs. Johnson would have had her pension. It would have been her "contingent" entitlement. The company said, through its solicitors, that the decision to change the scheme was made early in 2002 and that it was announced by an internal memo, which by definition Mr. Johnson was never going to see, on 30 July 2002. There was plenty of time to consult and to ensure that scheme members, if they wished, could make alternative arrangements. In Mr. Johnson's case, it may, for example, have been better had he taken early retirement, but the couple had no way of knowing that they needed to consider other options.

As there is no case law to help clear up the interpretation of this particular aspect of the law, particularly as it may impact on beneficiaries who are 240WH not members, the Government should consider making it plain how the law affects such things as widows' occupational pensions. It should not be for Mrs. Johnson, who has already suffered enough, to enter a lengthy and expensive legal battle to achieve that. So these are my two requests: to ask the Government to use their influence to seek an amicable settlement of this particular case, and to look at the 1995 Act to see if it can be made less ambiguous in regard to widows' pensions.

If anybody from American Greetings or Carlton Cards happens to be listening, I urge them to pre-empt my first request. In addition, they might also look again at what they owe Mr. Johnson's estate in other regards. The company he worked for relocated its premises and paid employees a relocation grant. It appears that because of his long-term illness, the company only paid a third of that money. They also appear to have reduced the lump sum that his pension plan was to pay out. Before he fell ill, Mr. Johnson was earning £28,000 a year. After his long-term absence, his pay was reduced to £16,000 a year. It was on the latter amount that his lump sum was calculated. The lesson here is that whatever one does, do not fall ill: it can make you considerably poorer.

To be fair, eight years' worth of Mr. Johnson's pension contributions were refunded, a sum of around £9,000, plus some interest. Solicitors claim that that was hardly going to pay for much of a pension—a few hundred pounds perhaps—so why should Mrs. Johnson be so bothered about it? In their eagerness to dismiss Mrs. Johnson's claim, however, they forgot that the whole point of the exercise was to save the company money. Thus they failed to say what had happened to the employer contributions over that time. How much has the company saved? What has happened to the contributions made in respect of Mr. Johnson? Is the sum so vast that it would bankrupt the company to use it for its intended purpose? This company, in its initial actions and in all its dealings with Mrs. Johnson since her husband's death, has displayed a disgraceful disregard for its associates. I hope that it will see sense and do something positive to start honouring its solemn mission statement.

§ The Parliamentary Under-Secretary of State for Work and Pensions (Mr. Chris Pond)

I congratulate my hon. Friend on securing this debate on such an important subject and at such an opportune time. He deserves tribute for keeping the interests of his constituents in the spotlight. May I also take this opportunity to add my condolences to Mrs. Diane Johnston, especially given the tragic circumstances in which she lost her husband? I know that the whole House will understand her concerns at this time.

Mrs. Johnson is going through the internal disputes procedure with Carlton Cards and the Office of the Pensions Advisory Service, as my hon. Friend explained. Hon. Members will understand that it would therefore be inappropriate for me to discuss the case before knowing the outcome of that procedure. My hon. Friend asked whether I might make representations to AG on the issue, but he will understand that such political intervention would be inappropriate, as Mrs. Johnson is going through the proper procedures at 241WH present. However, I am sure that AG and Carlton Cards will read our proceedings this afternoon and realise the seriousness with which this House treats such matters.

The issues raised in this debate highlight the importance of the partnership between the Government, employers, trade unions and individuals, which we believe is essential to deliver safe and secure pensions in the future. My hon. Friend referred to section 67 of the Pensions Act 1995, which requires that trustees consult scheme members before closing a scheme. I can confirm that section 67 prevents changes from being made to the rules of a scheme that would reduce a member's accrued pension rights without his or her consent. It preserves not just the value of the member's rights but the rights themselves. Clearly, in this situation, that will have to be determined through the internal disputes procedure and, subsequently, perhaps the ombudsman. Ultimately, it will be for the courts to decide whether the changes made by Carlton Cards breach section 67, although I note my hon. Friend's point that Mrs. Johnson is unable to take the matter through the full legal procedures.

In general, for section 67 purposes, the fundamental question is whether the changes that are being introduced will have a detrimental effect on members' accrued pension rights. That may not be simple to determine and may depend on the precise wording of the rules of the scheme, on which I cannot comment for the reasons that I have given. I should make it clear that, in general, trustees may approve changes within section 67 if they will benefit members as a whole, even if individual members are disadvantaged.

Our proposals, announced in "Action on Occupational Pensions—Simplicity, security and choice: working and saving for retirement" in June will amend the legislation so that schemes will be able to make changes to members' accrued pension rights without obtaining the consent of affected members, but only if the total actuarial value of each member's accrued rights at the point of change is maintained, and if the change does not involve converting any defined benefit pension rights into defined contribution rights.

This debate raises wider issues about the future of pensions. Mrs. Johnson's situation is reflected in different ways around the country by people who feel that their contributions over time have not been honoured in the pension and security with which they are provided in retirement. That is why we take seriously our role in partnership and why we are taking such positive action to protect current and future pensioners and to promote savings and adequate pension provision. As I am sure my hon. Friend will agree, this is a crucial time for pensions. It seems that not a day passes without some aspect of pensions coming under the 242WH spotlight. I again congratulate him on ensuring that this afternoon the spotlight is focused clearly on the situation in which Mrs. Johnson finds herself.

The Government believe that pensions are too important to be used as a political football. They affect the quality of people's lives in retirement, and that is why we take them seriously. However, we also seek to build consensus for the future. The case before us highlights the reality of the need to take action now that will strengthen, secure and simplify pensions provision in the UK. The pensions Bill, which will be introduced in the near future, will take forward the Government's proposals to bolster confidence in the pensions industry. It will provide a balanced package of measures to ease the financial and administrative burden on employers and will also bring forward measures to ensure that the pensions promise made to individuals is a promise kept without exception.

The new legislation will introduce a pension protection fund that will, for the first time in the UK, step in to protect members of defined benefit schemes if their sponsoring employer becomes insolvent and the scheme is underfunded. There will be a new proactive pensions regulator who will concentrate on the areas of greatest risk to members' benefits. The Government are committed to long-term reform to enable individuals to plan for their retirement and make informed choices about saving and how long they work. We are taking forward some important reforms in the occupational pensions area, including the pensions protection fund and the proposals on full buy-out—several small schemes have been recently wound up by solvent employers where the schemes were not fully funded. Hon. Members will know that we are seeking to change the priority order when schemes have been wound up. That is to ensure fairness between the treatment of different members of the scheme.

Through all of these measures, we are trying to strike a better balance of interests that will be fairer to all scheme members. We believe that the sustainable future of pension provision in this country is dependent on a continuing mix of provision between the state, occupational and private schemes. Our policies are aimed at promoting that continuing partnership, and on demonstrating that it remains worth while for people to save for a pension in the knowledge that their pension savings will be secure and there when they—or in this case, their survivors—need them.

We sympathise with Mrs. Johnson's situation and with other pension scheme members who may have lost out due to changes in their occupational pension scheme. We hope that the matter will be resolved to the satisfaction of all parties.