The gold-plated pensions which have halved in worth… is yours one?

For more than half a million British ­retirees, the shine has come off their so-called gold-plated pensions.

While the cost of living has jumped by more than 20 per cent over just the past three years, many pensioners have seen their retirement incomes plummet in real terms, dramatically slashing their purchasing power.

A slew of major multinational companies, including British energy giant BP and American technology firm Hewlett ­Packard, have denied thousands of their former employees all-­important annual increases. This has left many older British ­pensioners, who expected to be well looked after in retirement, at the mercy of rising costs.

Final salary or ‘defined benefit’ (DB) pensions pay retired ­employees an annual guaranteed pension income based on the number of years they worked at the company and their salary when they retired or left.

These ­pensions are now like gold dust, generally being much more generous than the ‘defined ­contribution’ pensions that employees get today.

The most valuable DB pensions are index-linked, meaning ­retirees’ incomes are both ­guaranteed to be paid for the rest of their lives and increase each year to keep pace with rising prices. As inflation has soared in recent years, it was these pensions’ time to shine – offering unrivalled protection against ­inflation that those with modern pensions can only dream of.

But a number of companies have been gradually rowing back on their promises of increases to retirement income.

In the worst cases, pensioners have seen their purchasing power cut by 70 per cent over the past two decades.

Many say they feel ‘cheated’ out of the retirement they expected because they have been forced to continue working into their 80s to make ends meet.

Under old rules, pension scheme trustees – who are meant to act in the best interests of members – could request an annual increase in income on behalf of ­pensioners at the discretion of the employer, but there was no ­obligation for companies to agree to this.

Amid a painful ­recession in the early 1990s, many companies refused to increase their former workers’ pensions, ­prompting the Government to change the law to better protect pensioners.

The 1995 Pensions Act made it compulsory for defined benefit schemes to increase their ­members’ pension income in line with retail price inflation up to a cap of 5 per cent from 1997 until 2005, when it was cut to 2.5 per cent.

While protecting pensioners from the worst ravages of inflation from that date, the law left companies free to refuse all discretionary increases for pension income accrued by those working before that.

Today, just over one in five DB pension schemes in the UK provide no increases on pre-1997 benefits, according to figures published by the lifeboat fund the ­Pension Protection Fund (PPF). It means that more than 500,000 ­former employees of hugely ­profitable companies – including American Express, Chevron, ­Hewlett Packard, 3M and Wood Group – have had their pensions effectively frozen, some for 20 years or more.

The effect on the finances and standard of living of these pensioners has been ­crippling, many of whom are now in their 70s, 80s and 90s.

Between 2008 and 2023, their ­pensions plummeted by an average of 56 per cent in value when accounting for inflation, according to Bank of ­England figures.

Tens of thousands of former BP employees are furious with the energy giant, claiming it has let them down by refusing to uprate their pensions by more than the minimum legal requirement.

BP’s final salary pension fund (BPPF) has a long record of being reasonably generous, with all members’ pensions guaranteed to increase each year by retail price inflation, up to a maximum of 5 per cent.

This includes former employees who built up their pension ­entitlement before 1997.

But after years of approving ­additional rises, in both 2023 and 2024, BP refused the trustees’ request for an increase above 5 per cent to shield pensioners from the cost-of-living crisis. Meanwhile, the state pension rose by 10.1 per cent in April 2023 to ­protect retirement incomes as ­inflation soared.

The firm blamed ‘a wide range of factors, including increases to the current cost of living, the funding position of the BPPF and the economic impact for BP’.

Michael Slingsby, 73, who worked for BP for 35 years as a senior operations manager in South Wales until 2003, says he feels badly let down. Michael is one of 57,000 BP ­pension fund members in the UK who were refused an additional discretionary rise in their final salary pensions over the past two years.

The result is that in 2022 and 2023 members of the fund have lost 11 per cent in the value of their UK pensions at a time when BP is making huge profits.

Some 14,000 are aged in their 80s and 90s. Those on lower incomes were offered a one-off means-tested grant. ‘It is a shameful state of affairs,’ says Michael.

‘As a fairly senior former BP manager I don’t claim to be in hardship, but my pension is considerably less than it would have been if promises to keep up with inflation had been kept.’

Michael is a member of the 3,000-strong BP Pensioner Group, which has appointed a legal team to challenge BP’s decision.

In April, the pension fund recorded a ­surplus of £5 billion, meaning it can cover all its payouts with money left in the pot.

‘We feel badly let down by the current management who have failed to honour decades of ­promises,’ Michael adds.

BP is not the only company to leave its former employees in the cold. So bad has the situation become that numerous pensioner ­campaign groups have lobbied the Government for mandatory ­inflation-linked rises to be applied to pre-1997 pension accruals.

The perceived unfairness has been repeatedly raised in both the House of Commons and the Lords, to no avail.

The last Conservative government refused to review the rules on the basis that it would be a retrospective change to the law.

But there may be hope yet.

­Earlier this year, the Department for Work and Pensions (DWP) select ­committee, under the ­previous government, ­recommended that the DWP and the Pensions Regulator ‘explore ways to ensure that scheme ­members’ reasonable expectations for benefit enhancement are met’.

In other words, companies should at least give ‘reasonable’ increases to pension income.

One approach would be to loosen the rules around how pension schemes use any surplus cash, allowing the trustees who manage the funds invested to use some of that money to increase pensions.

The UK’s 5,000-plus DB pension funds are not exactly strapped for cash – currently overfunded by a total of £474 billion, July figures from the PPF show.

Just 451 were in deficit, which means they would be unable to afford to pay ­members’ pensions. A DWP spokesman said: ‘Our priority is to try to ensure the best possible chance of members ­getting their promised benefits paid in full.

‘Indexation requirements are intended to strike a balance between providing members with some measure of protection against inflation and not ­increasing schemes’ costs beyond what they can afford.’

Without meaningful change in the rules, Maggie Rodger, co-chair of the Association of Member Nominated Trustees, says there is little trustees can do.

‘We firmly believe that the restoration of the inflation link for members should be the first call on a pension scheme surplus,’ she says. She says pensioners whose former employers have gone bust are suffering similarly.

Any pensions earned before 1997 that have been taken over by the lifeboat fund the PPF after an employer has collapsed do not increase each year, she says.

But she adds: ‘The PPF now has such a huge surplus that there is no excuse for not ­changing the rules to increase pre-1997 pensions.’

All companies mentioned in this article were approached for comment.