30 April 2024
Our Plan is governed by a document known as the Trust Deed and Rules – ‘our Rules’. Within this document are instructions on what members (and their dependents) are entitled to receive from the Plan. The primary responsibility of the Trustee is to ensure the Plan can afford to pay each member (or dependent if a member has died) the benefits they have built up in the Plan (and paid for), as outlined by our Rules.
Our Rules cover how a member’s pension is calculated, when it should be paid and how it will increase (if at all) once in payment. The part about pension increases is complex. The Plan has been in existence for about 50 years. In that time, successive Governments have made changes to the laws that surround pensions – with some of these laws dictating what increases must be applied to pensions.
This is not as simple a question as it first appears. Legally, there is nothing stopping them paying more. This is often referred to as a ‘discretionary’ increase. But - and it is a big ‘but’ – how are they going to pay for it?
Currently the total pensions paid by the Plan each year amount to around £90m. If the Trustee decided to give an across-the-board increase of just 1% that means an extra £900k to find each year. Bearing in mind some of the current pensioners will live for many more years, this could mean the Plan playing out millions of pounds extra over the coming years.
The Trustee is expected to act prudently. Yes, the Plan has over £2bn in assets, but this money has to pay for all the benefits that have already been built up for all the members (including those yet to start receiving their pension). And remember, this is the Trustee’s primary responsibility. It would not be prudent to simply add additional financial commitments on the Plan without consideration of how these will be paid for. So, the Trustee will need to find extra money if it wants to pay additional (or discretionary) pension increases. Where could that come from?
As a member you will have paid into the Plan to help pay the cost of providing your pension later. But as a pensioner you won’t be paying in anymore and I don’t think you’d expect your fellow members to pay the extra on your behalf.
Returns on the Plan’s assets could be the answer. But the value of investments can go down as well as up, so even if the Plan does have extra money now, the Trustee needs to act cautiously to ensure that if the value of the Plan assets go down it can still meet its primary objective – remember they must prudent!
The final option would be for the Company to pay in more. But the Trustee would need to be confident the amount paid in will be sufficient to cover the extra pension for the rest of each recipient’ s life – and that could be many millions just to give everyone just 1% more!
Every year the Trustee and the Company consider this question. Whilst we would never say never, you will see that it takes a lot of money to pay a relatively modest discretionary increase. So this year at least, there is insufficient ‘extra’ money available to pay more than our Rules dictate without risking the pensions due to members in the future according to our Rules.