Some Sotheby’s pensioners are considering taking their cases to the Pensions Ombudsman, alleging maladministration over the way the scheme was explained to them. The auction house has stopped paying inflation increases on pre-1997 pensions that pensioners thought were guaranteed and is now planning a scheme buyout without the increases.  

  

Pensions accrued before 1997 do not legally need to be inflation-linked – except for the GMP part – though many schemes have this written into their rules.  
 
The issue is coming into focus again as the consumer price index rose by 7% in the year to March and is expected to go even higher this year. It has been bubbling under the surface for some time; in 2017, a Westminster debate took place after former employees of Hewlett Packard and 3M protested about the lack of inflation adjustment of their pre-97 pensions, leading former pensions minister Richard Harrington to write to the chief executives of the respective companies, though he ruled out changing the law retrospectively.  

  

  

The Association of Sotheby’s Pensioners has taken legal advice and has said that several members are considering filing complaints with the Pensions Ombudsman claiming maladministration. They allege that Sotheby’s did not communicate clearly that the inflation adjustments it made to pensions over several decades were discretionary, and that even senior staff were under the assumption that pensions would be inflation proof. 
 

Staff were very aware of pensions, said Eileen Goodway, who represents the scheme’s pensioners’ association TASP. This was because in 1992, Sotheby’s auctioned the estate of the notorious media tycoon whose pensions fraud shocked the nation.   

  

“When Robert Maxwell died, there was huge talk about pensions and whether they were secure. For us at Sotheby’s this was really important because Sotheby’s auctioned his estate. We had the Mirror pensioners demonstrating in the main gallery before the auction. So we were very conscious of it, and asked if they are safe and were assured they were,” Goodway said.  

  

She said one brochure even gave an example where a retiree’s pension increases over 10 years from £5,000 a year to £7,000 a year. “It wouldn't cross your mind that the pension doesn’t increase,” she said.  

  

The way the pension scheme’s workings were communicated should be classed as maladministration, she claimed.

However, a similar complaint to the ombudsman from 2006, relating to a different scheme, was not upheld, even as a scheme booklet failed to explain that inflation increases were discretionary. At the time, the ombudsman said that “the booklet is intended to be only a summary and a guide in general terms to the Scheme’s benefits and administrative provisions” which did not override the trust deed and rules. A 2014 complaint by a Hewlett-Packard pensioner was not upheld either.

  

  

The issue is coming to a head at Sotheby’s because the £313m pension scheme, which had a surplus of £3.5m at the end of 2020, is looking to buy out and wind up soon. This would make the lack of indexation on non-GMPs irreversible, eroding pre-97 pensions just as a cost of living crisis is threatening to plunge over a million people into poverty next year.

  

Sotheby's signed a £100m buy-in of the pensioner benefits in July 2018 with Just Retirement and in October 2020 agreed a further buy-in, this time for deferred members, with Pension Insurance Corporation, which was implemented earlier this year. Administration for the pensioners, who are currently still scheme members, will be moved to Just in the coming months. The scheme has been closed to accrual since 2016.  

  

Trustee chair Martine Trouard-Riolle, from professional trustee firm Capital Cranfield, said the non-GMP element of the pensions is not required to be increased under the scheme’s rules and that the trustees have followed the required disclosure requirements. 

  

“The Scheme has, historically, provided discretionary increases on that element of the pension earned prior to 1997 but not every year and with reducing frequency,” she said, noting that in the last 10 years, the increases were made only three times, the last one in April 2019.  
 
The decision to provide a discretionary increase lies with the company, following a request from the trustees. “This is a process that has been followed each year,” she said. 

  

Trouard-Riolle added that “as part of the ultimate move to wind up the Scheme, there is no additional funding available to purchase future discretionary increases, and there are no available assets within the Scheme to facilitate this”. In 2020, the scheme made a loss of £25m on plan assets, having made similar gains in 2019. It held only insurance policies, cash and a small amount in property in late 2020.  

  

Management’s views on granting inflation increases seem to have shifted dramatically when the company changed hands. Activist investor Daniel Loeb and his hedge fund Third Point gained three board seats in 2014 after winning a battle against the firm, which paid $300m to shareholders that year. In 2019, the auction house was sold to and taken private by billionaire Patrick Drahi, who is believed to want to take the company public again later this year. The telecoms tycoon also has a stake in BT, which has one of the UK’s largest DB pension schemes.  

 

In other news, Sotheby's moved its defined contribution scheme to the Aegon Master Trust in May last year.