No inflation-linked increase for ex-Reuters UK pensioners

In a letter to the Pension Review Group, Thomson Reuters' CEO writes: "We do not believe we can unilaterally provide a discretionary increase at this time for the participants in the two former Reuters pension plans." 

He was responding to a letter from PRG chairman Angela Dean which pointed out that senior company executives had recently had financial rewards worth many millions. 

"It is hard to believe that the Company cannot afford a modest increase to the pension funds to ensure Reuters pensioners are fairly compensated, particularly in view of the financial performance of Thomson Reuters over the last year and predictions for 2009," Dean said.

Glocer replied "... To begin by addressing your request directly, we do not believe we can unilaterally provide a discretionary increase at this time for the participants in the two former Reuters pension plans (the Plans). We explain this position in the remainder of this letter. 

"As you are aware, the Reuters Pension Fund (RPF), the larger of the two legacy Reuters Plans, is an unusual and very old hybrid plan which combines elements of both defined contribution and defined benefit plans. In fact, during the 100 year plus history of the RPF, Reuters never took a contribution holiday despite years of pension surpluses as we followed the practice that company contributions were fixed. Consistent with this position, it was the Plan Trustees and not management of the company that held the power to determine investment strategy, surplus or deficit status and, importantly, how to provide inflationary increases, if any, to participants. 

"After a series of revisions to pension laws, a thorough review of the unusual Reuters Plans and the appearance of a deficit in the Plans, the company and the Plan Trustees entered into a Funding Agreement in 2006 pursuant to which the company made a £153m contribution to the RPF, and an undertaking to contribute an additional £40m. This served to cover Plan deficits, and thereby permit the Trustees to consider whether to make inflationary increases. The Trustees, using their discretion under the Plans and the 2006 Funding Agreement, did, in fact, grant increases of 2.7% in 2006, 3.6% in 2007 and 3.9% in 2008. In addition, consistent with the company's commitment to the retirement security of its former employees, Thomson Reuters entered into a parent company guarantee of Reuters obligations under the Plans soon after the completion of the Reuters acquisition, and fulfilled Reuters commitment to contribute another £40m to the RPF. 

"With respect to the manner in which discretionary increases are to be considered, the Plans and the 2006 Funding Agreement provide that following the close of each year, the scheme actuary is to perform a funding review to assess whether there was a surplus or deficit at the close of such year. If a surplus is determined to exist, the Trustees are empowered to use up to 40% of such surplus to provide a discretionary increase on Relevant Pensions (as defined), subject to a maximum of the change in RPI in the year to the preceding September, capped at 5%. This mechanism was put in place as it was understood between the parties that the primary objective should be to secure members' benefits and that the granting of any discretionary increase should not be materially detrimental to that primary objective.

"It should thus be clear that the ability to authorize any inflationary increase is dependent on the investment performance of the Plans which is managed by the Trustees of the Plans, and not the company. As 2008 was an "anno horribilis" for the investment community, it is not surprising that the Plan Trustees have determined that no inflationary increase is possible at this time.

"We are committed to working with the Trustees of all the company's plans to find solutions which honor the contributions made by generations of Reuters and Thomson employees in building the current company. While Thomson Reuters is prepared to consider alternative arrangements with the Trustees, these discussions must await the expiration of the current 2006 Funding Agreement." 

Following is the full text of the PRG's letter to Glocer: 

Dear Mr Glocer

I am writing to you as Chairman of the Pension Review Group (PRG) which as you are aware, has been campaigning for a number of years to restore the annual inflation-linked pension increases for pensioners of the UK Reuters Pension Fund and Reuters Supplementary Pension Scheme. 

We are delighted to see that Thomson Reuters has achieved such successful financial results for 2008, and that the outlook for this year is positive. However, for Reuters pensioners the prospect for 2009 is somewhat gloomy as, in view of the current global financial problems, we do not anticipate an increase to our pensions this year. This will mean that since 2002, the overall value of our pensions will have fallen by 13%, as measured by the increase in the Retail Prices Index. 

The agreement between the Trustees and the Company for providing discretionary increases depends on there being a funding surplus, and if the financial markets continue to perform at their current level, the likelihood of future pension increases would seem remote, so our pensions will suffer an even greater loss in value. This is a serious concern for the pensioners we represent. 

By contrast, we understand that pensioners who are members of the Defined Benefit Scheme in Thomson, receive a guaranteed annual increase and are not subject to the uncertainties of a funding agreement formula. 

Thomson Reuters is still the only FTSE 100 company that fails to pay an annual index-linked increase to some of its pensioners who are members of a defined benefit scheme. The principle of an annual inflationary increase applies, in law, to pensions earned since 1997 and to all UK state pensions. Surely a company of this stature and wealth should not be uniquely out of step in applying this principle, and thereby penalising the very people who were instrumental in building the success of Reuters and are now most vulnerable? 

Following the merger of Thomson and Reuters, the companies were involved in an exercise to equalise the benefits of the different groups of employees. We believe it is only fair that this principle of equity should be applied to pensioners. 

We note that senior executives at Thomson Reuters have recently been awarded significant financial rewards worth many millions, which include compensation for former Reuters staff to recognise differences in company pension benefits. It is hard to believe that the Company cannot afford a modest increase to the pension funds to ensure Reuters pensioners are fairly compensated, particularly in view of the financial performance of Thomson Reuters over the last year and predictions for 2009. 

We would ask that the Company review its position regarding inflationary increases for Reuters pensioners, and consider injecting sufficient money into the funds to enable the payment of such increases on a yearly basis.

The situation for pensioners is increasingly difficult as they can no longer rely on their savings to mitigate the effects of a decrease in the value of their pensions, so they are doubly penalised. The assurance of an annual inflationary increase, instead of the yearly uncertainty that a discretionary award brings, would go a long way to protecting us from a permanent decline in real incomes.

I hope you will give our request serious consideration and look forward to hearing from you.

Yours sincerely

Angela Dean 

Chairman, Pensions Review Group ■