Tom Ward: Heineken's pension decision makes a review a must

By whichever means the Heineken/S&N case is resolved - and let's hope the House of Commons select committee holds public hearings so the issues involved can be properly aired - there are much broader matters illustrated by this case that should concern everyone.

Back in the 1980s, company pension schemes were seen as being safe but boring. Good companies - the large majority - had an excellent record of increasing pensions each year in line with RPI. Directors were members of the scheme themselves, so had a direct personal interest in ensuring everything was done properly.

In 1997, the law was changed to require that pensions earned after then had to be increased each year in line with RPI. But the law never applied to service before 1997.

For the majority of companies, which adjusted for RPI each year anyway, as S&N did, the new law made no difference. As long as nothing major changed, all would be well.

But lots of things did start to change. Tax relief for the pensions of higher-paid employees, including the directors, was capped - so some directors made their own pension arrangements outside the company scheme. And, human nature being as it is, their personal commitment to the health of the company scheme began to wane. That made it easier for the accountants to explore ways of cutting pension costs - perhaps by not indexing pre-1997 pensions in line with RPI?

S&N always resisted this. Older pensioners were the people who had built the business. They trusted the company to provide the pension that had been promised. For the company to renege on the deal would have been seen as unworthy. But that is what Heineken did.

During the bid for S&N in 2008, Heineken went out of its way to emphasise its financial strength - and gave a public undertaking that it would adopt the same inflation-linking policy as S&N. This undertaking was written into the minutes of the S&N shareholders' meeting that approved the bid and reported to the Court of Session hearing that had to give its approval.

Then in 2010 - less than three years after the takeover - Heineken changed its mind and gave no discretionary increase for inflation. Heineken is a global company and has a strong reputation for integrity. But if a company like Heineken can be tempted to disregard its obligations to the older pensioners, what hope is there for the pensioners of other firms?

Reviews of future pension benefits are a fact of life across many companies and public sector bodies. Why should anyone feel any sympathy for the older pensioners of S&N?There is a crucial difference between past service benefits, and future service benefits. Cuts in future benefits may be very unwelcome but are done openly and allow employees to make any necessary changes to their financial planning. Real cuts in the value of pensions in payments - especially for older pensioners - are a different matter. How does an 80-year-old suddenly find ways of filling the hole in their pension made by inflation when their old employer stops helping? Perhaps the time has come for a change in the law to be considered. Pensions arising pre-1997 should also be indexed in line with RPI, just as post 1997 pensions are. And if the company has fallen on hard times, and just cannot afford it? OK - let them off, as long as there are no dividends paid and no pay increases to the directors. That will help to focus minds.

The Takeover Panel is right to be looking at how to make sure pensioners are better protected during and after takeovers. The panel should look closely at what Heineken said and did before and after the takeover and act accordingly.

• Tom Ward was the corporate development director at Scottish & Newcastle during the 2008 bid from Heineken.