The government will “consider and reflect” on the indexation of pre-1997 benefits paid by the Pension Protection Fund (PPF), according to its response to the Work and Pensions Committee’s defined benefit (DB) scheme enquiry.
Currently, the PPF does not provide indexation to any compensation it pays linked to benefits accrued before April 1997.
However, given its strong funding position, the Work and Pensions Committee said the government should consult on the potential introduction of indexation for affected members.
The PPF had a reserve worth £13.2bn as of 31 March 2024, according to its latest annual report.
The government said in its response to the Work and Pensions Committee that any change to how the PPF uses its reserve fund would have an impact on public finances.
“Ministers continue to take advice on options, we will need to work through the issues to ensure a balance can be struck between all parties, including the interests of members of failed schemes, the levy payers who support the PPF and taxpayers,” the government said.
It said it would “consider and reflect” on reports from pension scheme members about pre-97 indexation, as “income in retirement may have been significantly eroded by the recent period of high inflation”.
“These are complex matters requiring a balanced approach for those receiving compensation, levy payers and taxpayers,” the government stated.
A spokesperson for the PPF said the lifeboat fund welcomed the “fresh consideration of our compensation framework, particularly pre-97 indexation, noting the challenges identified”.
“We welcome the active engagement with colleagues in government and will continue to work constructively with them to progress these issues with urgency, reflecting the strength of feedback from members, levy payers and industry bodies for change,” the spokesperson added.
In response to a separate recommendation from the committee, the government said it had not considered removing the cap on Financial Assistance Scheme payments – which are also administered by the PPF – as this would “significantly increase costs to the exchequer”.
The Department for Work and Pensions and the Pensions Regulator are to explore pre-1997 increases across the DB sector, as set out elsewhere in the government’s response.
