Dear Minister Bell,
Re: Moral Hazard in Pension Reform – Ensuring Fair Outcomes for Pre-1997 Pensioners
We are writing as Co-Chairs of the Hewlett Packard Pension Association (HPPA), and as representatives of the
broader Pre-97 Alliance campaigning for justice for pre-1997 pensioners. This follows a previous letter sent to
you on this issue. We now write to raise a further concern that we ask you to consider within your reform
agenda: the risk of moral hazard within pension surplus extraction proposals — and the need to ensure they do
not reward past company practice while leaving pensioners behind.
As you will be aware, approximately 22% of Defined Benefit schemes do not provide inflation indexation for
pensions accrued before 1997. In many of these schemes, including our own, discretionary power lies solely
with the sponsoring employer. Trustees — even when advocating for increases — have no authority to act
without company consent. As a result, many pensioners have received no increase in over 20 years, despite
sustained inflation and, in some cases, strong scheme funding.
Following years of deficits (including periods of company contribution holidays), our scheme achieved surplus.
Yet, our trustees previously agreed a policy that allows the company to benefit automatically from any surplus,
without requiring any restoration of value to members whose pensions have been frozen for decades.
This is a real live example of how sponsor power and trustee weakness in exercising fiduciary duty has enabled
the erosion of pension value to the detriment of members. It is exactly the kind of pattern that, if left unaddressed in legislation, will repeat itself under the new surplus rules.
Moral Hazard for Government
The government now proposes to allow sponsors to extract surplus under certain conditions. But if these reforms do not require sponsors to first redress the financial loss suffered by pensioners due to decades of zero
discretionary increases, it risks embedding and compounding the injustice into the new regulatory framework.
This would amount to a moral hazard of the government’s own making: enabling companies to benefit
financially from surpluses – while pensioners continue to bear the cost of past practice.
Our Suggestions and Request
To safeguard the integrity of your reforms, we respectfully urge you to consider the following measures:
- Restore value before reward: Require that any surplus extraction is conditional on a formal
assessment of how pre-1997 pensioners have fared — and, where no discretionary increases have been
provided, mandate that some form of restoration must be addressed first. - Empower trustees: Strengthen the statutory role of trustees to propose and approve discretionary
increases where schemes are in surplus — removing the current veto held by sponsor companies. - Introduce a Code of Ethical Practice: As previously submitted by HPPA to the Work and Pensions
Select Committee, establish guidance for surplus use and discretionary powers to ensure decisions
reflect both legal duties and ethical responsibility. - Improve transparency in surplus policies: Require schemes to disclose how surplus decisions are
made and whether member cohorts — especially pre-97 pensioners — are being treated fairly.
We recognise that scheme histories are complex, and that reforms must strike a balance between sponsor
confidence and member protection. But balance is not achieved if there is silence on pre-97 injustice — or by allowing companies who have not given increases for many years to extract value before making good on the true purpose of all pension schemes: to provide financial security to members in retirement.
If your reforms are to be remembered for improving the pension landscape, they must also be remembered for restoring fairness to pre-97 pensioners who have waited far too long to be recognised.
We would welcome the opportunity to discuss this further with you or your officials. We are also encouraging our
members to raise these concerns directly with their MPs in the weeks ahead.
Yours sincerely,
David Carson and Patricia Kennedy
On behalf of the Hewlett-Packard Pension Association (HPPA) and the Pre-97 Alliance
28 May 2025
