The Department for Work and Pensions will boost pension payments for 256,000 people in defined benefit schemes through new pre-1997 indexation changes
A staggering 256,000 individuals could soon receive increased pension payments, following an announcement from the Labour government. The update will provide relief for people enrolled in defined benefit pension schemes.
Such schemes guarantee members a specific level of payment based on their length of service and salary upon retirement. However, archaic regulations stretching back over 28 years have resulted in many scheme members receiving less than they were entitled to.
The rules were amended in 1997 to ensure payments to scheme members increased annually in line with inflation, reports Birmingham Live. Prior to this change, some schemes did not offer such protection, leaving savers vulnerable to inflation eroding their funds.
Labour is now set to implement changes that will see tens of thousands of people receive higher payments once the legislation is updated.
Department for Work and Pensions minister Torsten Bell explained: “At the Budget, the Chancellor announced that the Government will introduce pre-1997 indexation in the Pension Protection Fund (PPF) and the Financial Assistance Scheme (FAS), for members whose original schemes provided this. Compensation payments from these schemes on pensions built up before 6 April 1997 will be CPI-linked (capped at 2.5%), and this will apply prospectively [ie – going forwards].”
He added: “The PPF have made an assessment that around 165,000 PPF members and 91,000 current FAS members will benefit from this change as they have some pre-97 benefits where their former schemes provided mandatory indexation.”
He revealed: “Analysis published by the Pensions Regulator indicates that, as of March 2023, around 17 per cent of members of private sector defined benefit pension schemes do not receive any pre-1997 indexation on benefits.”
He further explained: “Reforms in our Pension Schemes Bill will enable more trustees of well-funded defined benefit pension schemes to share surplus with employers, and deliver better outcomes for members, and benefit the wider economy, unlocking some of the estimated ÂŁ160 billion of scheme surplus. As part of any agreement to release surplus funds to the employer, trustees will be better placed to negotiate additional benefits for members such as discretionary indexation.”
Mr Bell added: “The Pension Regulator already sets out that trustees should consider the situation of those members who would benefit from a discretionary increase and whether the scheme has a history of making such awards. The Regulator will be producing further guidance on surplus sharing once the legislation is in place.”
