Question to the Department for Work and Pensions:

To ask the Secretary of State for Work and Pensions, if she will consider making provision for mandatory index-linked payments in pre-1997 defined benefit pension schemes.

Members of these pension schemes are understandably concerned at seeing inflation erode the value of their retirement income.

Most schemes do pay some pre-1997 indexation, because of scheme rules or as a discretionary benefit. Analysis published last year by the Pensions Regulator shows that as of March 2023, only 17 per cent of members of private sector defined benefit pension schemes do not receive any pre-1997 indexation on benefits. This information can be found at: https://www.thepensionsregulator.gov.uk/en/document-library/research-and-analysis/data-requests#f3a5fe60511a445f91112bd7dd8a64ae

It would be unreasonable to retrospectively legislate to increase the cost to schemes for benefits already earned, as these costs could not have been taken into account in the funding assumptions used to set contribution rates at the time.

The Government’s pension reforms on the use of surpluses in defined benefit schemes will make it easier for individual schemes to make decisions that improve outcomes for both sponsoring employers and members, which could include discretionary benefit increases. These changes are being taken forward through the Pension Schemes Bill which had its second reading on Monday 7^th July.

The Pensions Regulator (TPR) has expressed 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. TPR will be producing further guidance on surplus sharing once the legislation is in place.