Pension increases are reviewed on an annual basis, after the publication of inflation measures. For members who joined the Fund before 1 January 2009 pensions in excess of the Guaranteed Minimum Pension (see SCPF website) will increase each year in line with increases in the December Retail Prices Index (RPI) up to 7% (different increases apply for members of the Moplefan or Enterprise Oil sections). For members who joined the Fund on or after 1 January 2009, pensions will increase each year in line with increases in RPI up to 5%. Whilst there are no set criteria on what could trigger a decision to award an increase above the relevant cap (7% or 5%); the Company takes into account a number of factors to inform its decision regarding pension increases. Some of the key considerations that led to the Company’s decision are outlined below.
Cost of living
The Company recognises that higher levels of inflation have been observed in the last two years. However, whilst the Trust Deed and Regulation of the Fund provide increases up to the relevant caps based on RPI, the Office for National Statistics does not believe RPI is a good measure of inflation. The Office for National Statistics preferred measure for inflation is the Consumer Prices Index, including owner occupiers housing costs (CPIH) which was 9.2% in December 2022 and 4.8% in December 2021. For members who joined the Fund before 1 January 2009 the pension increases granted in the last two years have been in line with CPIH and therefore pensions have not reduced in real terms. Looking over a longer 10-year period, pensions have increased in real terms by 6.5% for joiners before 1 January 2009 and 2.5% for joiners on or after 1 January 2009.
Cost of funding pension increases in excess of the cap outlined in the Trust Deed and Regulations
Provision of pension increases above the relevant caps outlined in the Trust Deed and Regulations would significantly increase the Fund’s liabilities and over time erode the surplus in the Fund which acts as a buffer for all members of the Fund. An increase in line with the RPI increase of 13.4% this year would in itself have increased the Fund’s liabilities by more than £500 million therefore significantly eroding the current surplus in the Fund.
Equity between stakeholders
In making any decisions regarding pension increases the Company needs to take into account all stakeholders; the security of benefits of non-pensioner members of the Fund, salary increases granted to current employees and distributions to shareholders. Whilst pensions in payment have been protected over the last few years other stakeholders have had to bear reductions in payments (in the way of significantly reduced dividends or pay freezes).
Taking the above factors into account, the Company believes in the current circumstances the pension increases granted in 2023 up to the relevant caps remain appropriate.
