300,000 pensioners who missed out on inflation-linked increases to get payout
More than 300,000 pensioners are set to have their retirement savings topped up following a change in the law. If you’re eligible, you should get a letter next month.
Pensioners who were in certain pension schemes of failed companies are in line for a share of almost £2 billion in top-up payments.
The Pension Protection Fund (PPF) – the industry-funded rescue fund for defined benefit pension schemes – will begin writing to in excess of 300,000 former staff of collapsed firms from July. Payments will be made from January 2027.
These pensioners missed out on inflation protection which they should have been entitled to as part of their payments from their company pension schemes – meaning their pension should have risen in line with prices but didn’t.
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Defined benefit pensions pay a regular guaranteed income based on a worker’s salary and length of service. Many are closed to new members but are particularly valuable because of the inflation protection which boosted the retirement income.
However some pensioners were denied this valuable benefit before 1997 by their former employers, in firms that later went bust.
A recent rule change now means they will get the money they are owed. In April, the Pension Schemes Act became law, allowing the PPF and the Financial Assistance Scheme (FAS) to make the additional inflation-linked payments.
The PPF protects millions of UK defined benefit scheme members if their employer becomes insolvent. The Financial Assistance Scheme (FAS) is a separate but similar government-funded scheme designed to help those whose employers became insolvent between 1997 and 2005. Both are administered by the PPF.
A PPF spokesperson said: “Supporting our members is central to the PPF's role. The government's decision to enable us to pay inflation increases on pre-97 compensation will strengthen outcomes for many PPF and FAS members.
“Implementing this change requires significant work and we’re making good progress to be able to start paying these increases to eligible members from January 2027. We will continue to keep members fully informed throughout."
Who will get payouts?
The change in the law applies to PPF and FAS members whose former pension schemes promised to pay its members pre-1997 inflation-linked increases in their retirement payments.
Prior to 1997 – long before the PPF and FAS were set up – the law did not compel employers who provided defined benefit scheme pensions to also provide inflation protection for their members’ retirement income.
In practice the majority of defined benefit pension schemes did, in their scheme rules, provide inflation protection, but not all.
When the PPF and FAS were set up, the founding legislation (Pensions Act 2004) did not allow these lifeboat funds to pay pre-97 inflation-linked increases to all their members.
Now, however, the change in the Pension Schemes Act applies to PPF and FAS members whose former schemes promised pre-97 indexation as a right.
The PPF has, in the past months, reviewed the scheme rules of all 2,000 schemes which have transferred to the PPF and FAS.
Having completed this exercise, the PPF has determined that in excess of 300,000 members will be eligible for pre-1997 inflation-linked pension increases in the future.
Affected pension scheme members don’t have to do anything. The PPF will write to those eligible from next month.
