The vast majority of DB pension schemes will be offering below-inflation increases to their members according to pension consultancy Broadstone.
Its analysis of data from the Pension Protection Fund’s (PPF) Purple Book found that more than two thirds (68 per cent) of schemes provided inflation-linked increases that, for the vast majority, are capped at 5 per cent for post-1997 benefits.
For benefits accrued before 1997, 31 per cent of schemes have capped inflationary increases and a similar proportion (32 per cent) have fixed increases. One in five schemes (21 per cent) do not have any indexation on these scheme benefits.
The analysis found that 9 per cent of schemes provide uncapped inflationary indexation increases to benefits, applying to benefits accrued both before and after 5 April 1997.
Broadstone head of policy David Brooks says: “Soaring inflation has once more brought the topic of DB indexation back into the spotlight.
“It is clear that the majority of schemes will be uprating member benefits below the September rate of inflation given the prevalence of 5 per cent caps. It is important that members are aware of how their benefits will be impacted in April so they can budget accordingly and don’t receive any nasty surprises.
“What makes this issue more complicated for schemes and trustees is that the cost of living crisis has coincided with significant funding improvements for DB schemes leading to calls for discretionary increases for member benefits.
“Members believe that due to the improvement in funding levels, pension schemes could reasonably afford to grant a one-off uprating to help payments keep pace with inflation at a difficult time for household budgets.”
He adds: “However, members need to appreciate that ‘heads I win, tails you lose’ has put large strains on employers to invest in these pension schemes over many years – more than they probably ever anticipated.
“Providing greater than agreed increases is not something that employers should be compelled to do although we understand the pensions minister is mulling on this area. Other than introducing some upside sharing for the distribution of a funding surplus from the recent consultation, it is unlikely there will be a legal way to help members.”