The Society of Pension Professionals (SPP) has urged the government not to impose a universal requirement for defined benefit (DB) schemes to grant inflation increases on pre-1997 pensions, arguing the issue is too complex and varied to be solved through legislation.
DB members do not have a statutory right to indexation on benefits earned before April 1997. While many schemes provide increases through their own rules, a significant minority do not, prompting long-running lobbying campaigns by former staff from companies including Hewlett Packard, BP, and American Express.
The SPP said interest in the issue was rising again as the Pension Schemes Bill progresses through parliament. The bill contains new flexibilities relating to the use of scheme surpluses, which some campaigners believe could be channelled towards restoring lost inflation protection for older cohorts of DB members.
“Imposing an obligation to pay pre-1997 increases retroactively and across the board via a legislative change would present substantial challenges and risk unintended negative consequences.”
Jon Forsyth, SPP
In its new paper, published today (18 November), the SPP set out competing considerations for trustees, sponsors, and members. It examines the cost of providing protection, the impact on employers, the complexities of scheme design and the risk of unintended consequences, particularly for schemes that remain in deficit or have only modest surpluses.
The report also highlights pressure on the Pension Protection Fund (PPF) to consider pre-1997 increases for the 172,000 members of the PPF and Financial Assistance Scheme with service before 6 April 1997, who currently receive no indexation.
However, the SPP argues that decisions about pre-1997 benefits should remain at a scheme level rather than be mandated centrally. The paper concludes that “the SPP believes that pre-1997 indexation (and wider discretionary practice) is a scheme-specific issue that should remain subject to negotiation rather than being subject to new legislative requirements”.
In Depth: The battle for pre-1997 indexation
Pensions Expert explores the debates around pre-97 indexation and how the Pension Protection Fund could use its reserves to support affected pensioners – if the government allows it. Read the full article.
Jon Forsyth, chair of the SPP’s DB committee, said: “Many pensioners have experienced an erosion of value in their pensions as a result of not having inflationary protection on their pre-1997 pensions.
“However, imposing an obligation to pay pre-1997 increases retroactively and across the board via a legislative change would present substantial challenges and risk unintended negative consequences, not least for those schemes that are in deficit or have only a small surplus.”
He added: “In our view, policymakers should instead continue to focus on the adequacy of pension provision for future generations, and should also strongly consider legislative change to permit one-off lump sum discretionary payments to DB scheme members.”
