Chancellor Reeves has confirmed that pensions accrued before 1997 in the Pension Protection Fund and the financial assurance scheme will be indexed for inflation.
In her second Budget speech, she said: “I will index for inflation on pensions accrued before 1997 in the Pension Protection Fund and the financial assurance scheme so that people whose pension schemes became insolvent, no fault of their own, no longer lose out as a result of inflation.”
The move protects savers affected by scheme insolvencies and ensures their retirement income keeps pace with inflation.
It applies to members whose original schemes included pre-1997 indexation and generally aligns these rules with those already in place for post-1997 pensions in the PPF and FAS.
The PPF estimates that more than 250,000 members could benefit from this change.
PPF chair Kate Jones says: “We warmly welcome the government’s move to change pre-97 indexation rules for PPF and FAS members. We’ve long known the impact the absence of pre-97 increases has had on affected members. It’s been important for us to support positive outcomes for, and balance the interests of, our levy payers and members. We’re pleased that members’ voices have been heard, and the government has acted positively.”
PPF chief executive officer Michelle Ostermann says: “This is the right time to make this change to enhance the inflation protection for our members. Twenty years on from the creation of the PPF, we’ve matured and now stand in a strong financial position. While risks do remain, we’re confident we can absorb this change without compromising the high security we provide for members’ benefits or impacting our plans to set a zero PPF levy next year.”
PPF chief customer officer Sara Protheroe says: “I’d personally like to pay tribute to the member campaigners who’ve long advocated so powerfully for change. This positive move would make a meaningful difference to thousands of members’ lives. While implementing this change will be no small task, we’re fully committed to delivering this at the earliest opportunity if and when it becomes law.”
SPP DB committee chair Jon Forsyth says: “The SPP welcomes the increased flexibility that this legislative change will bring and recognises that for the PPF and FAS such a change appears to make sense, and has the potential to benefit a huge number of pensioners.
“As we made clear in our recent paper, individual schemes should be able to make decisions about whether or not to apply pre-1997 indexation and by making this legislative change, the PPF and FAS will now have such freedom.”
Aptia chief actuary Phil Wadsworth says: ‘The Chancellor’s announcement that she would index pre-1997 pensions in the Pension Protection Fund and Financial Assistance Scheme is good news for those members who lost out when their employers went insolvent.
“But this measure could put further pressure on trustees of other schemes that similarly aren’t protected against inflation. Members of large occupational schemes are already lobbying MPs for their benefits to be indexed, and this measure could encourage them to press harder.
“This is a complex subject and in almost all cases trustees will be cautious about doing so, often because they don’t want to set a precedent or a potentially confusing expectation for members. Equally sponsors as well as the government were looking to spend these monies in ways to drive their businesses and the economy. But trustees should prepare for further enquiries by making sure they understand their scheme’s position and communicating empathetically with members.”
