Companies cut back on their pensions bills

Robinsons Fruit Shoot © Alamy
Robinsons maker Britvic: squashing pensions

Britvic is the latest firm hoping a cheaper inflation index will cut pension costs.

Britvic is hoping to reduce the cost of its staff pension scheme by cutting the size of the increases it makes to pensions each year. The move could pave the way for other employers to do the same.

The drinks company currently increases pensions each year in line with inflation as measured by the Retail Price Index (RPI), but wants to move to the Consumer Price Index (CPI) measure for future increases.

Since CPI is typically lower than RPI, such a move would result in lower annual pension increases for Britvic pension scheme members, reducing the cost of the scheme over time to the company. RPI currently stands at 2.8% while CPI is only 2.1%.

The change in the scheme rules requires court approval and is opposed by employee representatives. The trade union Unison has argued that the switch from RPI to CPI would cost each of Britvic’s 6,000 scheme members up to £12,000 over the course of their retirement.

There is no guarantee Britvic will be able to make the change, with other companies seeking to do the same having previously failed to secure the necessary legal permissions. In particular, the telecoms giant BT has lost in the courts three times over the past two years after seeking to change from RPI to CPI at its pension scheme. The charity Barnardo’s has lost a similar case.

Firms will keep trying

However, some companies have successfully moved from RPI to CPI. The transport company Go-Ahead, for example, made the switch last year, with advisers estimating it had wiped £40m off its future pension liabilities as a result.

With such substantial savings available from what looks like a minor change to scheme rules, it is likely that more employers will pursue this option in the future. And in practice there may be little scheme members can do to stop their pension rights being downgraded.

Each of the court cases heard so far on RPI to CPI switches has turned on the interpretation of how particular pension schemes word their rules. The cases are therefore scheme-specific rather than a consequence of general legal principles. Where schemes give employers more discretion to make changes to benefits, members may be powerless to stop them.

So if Britvic gets permission to go ahead with the switch from RPI to CPI, other companies will be encouraged to follow suit. And with many employers still concerned about the cost of pension promises, there are likely to be more cases in the years to come.

Man from the Pru may bring a windfall

Thousands of members of company pension schemes administered by Prudential may be in line for a windfall after inaccuracies in the way their pensions have been calculated were identified.

The Pensions Regulator has written to the trustees of around 120 pension schemes following discussions with Prudential over how a change to the law in the early 1990s was implemented.

The change followed a legal ruling that employers could not have different retirement ages for men and women; employers therefore had to equalise pension benefits, often by offering men more generous terms.

Now, however, it appears that not all schemes followed the new rules in the right way. As a result, some members may have received less money than they were entitled to – as much as 25% less in the most extreme case.

Prudential and the Pensions Regulator are now in discussions over how to resolve the problem, with some financial advisers urging the insurer to proactively identify and contact every saver potentially affected in order to offer compensation.


Tax reprieve of the week

Over 120,000 businesses that have missed a tax deadline will have their £100 fines waived, HMRC announced this week. A total of 1.2 million small companies and self-employed workers are subject to new rules known as Making Tax Digital (MTD), a state-mandated shift towards submitting online tax returns with specialist software. The idea is to reduce errors in tax returns that cost taxpayers nearly £10bn last year.

MTD applies to firms or people with a turnover above the £85,000 VAT threshold. Around 490,000 businesses should have completed their first return by 7 August. The expense and hassle of adapting to MTD has been widely criticised, and HMRC has chosen not to enforce penalties in the first year; it has also acknowledged that small companies may now be fully focused on disruption from a no-deal Brexit.


Cold-call crooks shift their focus

A ban on cold calling in the pensions industry introduced in January has seen fraud decline sharply. The number of reports of pension scams received by the National Fraud Intelligence Bureau is down 75% so far this year, according to stockbroker AJ Bell. Financial losses from pension fraud have fallen by 85%.

The drop follows changes in the law that came into effect in January, making it illegal to approach savers and investors with unsolicited telephone calls or emails offering advice on pensions. Scammers had previously used such calls to push schemes such as pension liberation plans, or even outright frauds.

However, AJ Bell’s figures reveal that the number of scams related to investment, which is not covered by the cold calling ban, has almost doubled this year, with 8,000 cases already reported. This suggests fraudsters who previously targeted pensions as easy pickings have moved on to investment scams instead, with cold calls and unsolicited emails still rife in this area of the financial services market.

Pension savers could still be big losers. Many are now managing substantial pots of investment cash, having used the income drawdown rules to cash in their pensions early in retirement. Such funds represent a tempting target for fraudsters. So far, however, ministers have not responded to calls to extend the cold calling ban to cover investment products.