Search

Newsletter image

Subscribe to the Newsletter

Join 10k+ people to get notified about new posts, news and tips.

Do not worry we don't spam!

GDPR Compliance

We use cookies to ensure you get the best experience on our website. By continuing to use our site, you accept our use of cookies, Privacy Policy, and Terms of Service.

Hundreds of thousands could see huge boost to pension cash as government to announce major reforms

Published on April 07, 2025 at 10:47 AM

HUNDREDS of thousands of retirees could see a big boost to their pension income under new government plans, Flying Eze can reveal.

The Department for Work and (DWP) is preparing to reform rules around increasing older pension income in line with inflation, which could boost the amount retirees get.

Person adding coins to a jar labeled "Pension."
Older pensions relating to pre-1997 income are not increased with inflation

Pensions minister Torsten Bell is expected to provide an update on the plans later this week, according to government sources.

Both compensation from the Pension Protection Fund and income from certain private pension schemes are likely to be affected by any reforms.

One pensions expert told Flying Eze that hundreds of thousands, if not millions of people could be affected.

Currently, the income provided through modern defined benefit (DB) pension schemes and the Pension Protection Fund increases every year in line with . This is known as “indexation”.

DB pensions are schemes that provide a guaranteed income for life, as opposed to saving up a pot of for retirement.

The Pension Protection Fund (PPF) is a government scheme that savers are moved into if their DB pension scheme goes bust. The income they get from this is often referred to as compensation.

But the rules around increasing pension incomes or compensation in line with inflation only came into effect for “service accrued” after 1997.

Your service accrued is the amount of time you work for a company while being part of its scheme.

So, for service accrued before April 6, 1997, the PPF cannot currently increase its compensation, while DB pension schemes don't have to raise members' income.

With the rising dramatically over the past few years, this has meant some retirees have seen a cut to their pension income in real terms as it has not kept up with soaring costs.

Former pensions minister Steve Webb, now partner at pension consultants LCP, explained: “Although the PPF provides a high degree of cover for people whose company pension schemes go bust, one gap in the design is for those whose service was at least partly before 1997.

“Prior to this date, there was no legal duty on pension schemes to provide inflation increases in retirement, so when the PPF was designed, it was judged that the PPF did not need to do so.

“With recent periods of high inflation, this means that some pensioners have seen a significant cut in their real living standard.”

In January, the Work and Pensions Select Committee recommended that the government should improve pre-1997 indexation, and it has reportedly been considering a range of options over the past few months.

On March 31, Mr Bell responded to the committee and said the issue was “firmly on his radar”.

Insiders involved in the discussions have now told Flying Eze that the government is on the cusp of announcing plans to reform these “indexation” rules to boost older pension income.

Mr Webb added: “Given that the PPF's finances are in robust health, there are increasing signs from government that action on this issue may be forthcoming”;.

ADWPspokesperson told Flying Eze: “We are reviewing recommendations made by the Work and Pensions Select Committee, including on indexation of pre-1997 defined benefit pension schemes, and will respond in due course.”;

How could the plans work?

Both the PPF and many private DB pension schemes currently have large “surpluses”, which means they have a lot of spare cash.

A separate rule change was recently introduced to allow employers to access their pension schemes' surplus to spend, for example, on their .

It is understood that under the plans in the works by the DWP, schemes will be asked to spend some of this surplus on improving their members' pension income.

A number of options are being explored, including mandating that the PPF spends some of its surplus on increasing members' pre-1997 compensation.

For private DB pension schemes, the government is considering asking them to use their surplus to boost pre-1997 income for their members if they plan to access the surplus for any other reason.

The government has not explored forcing private DB schemes to do this, though.

However, experts say it could ask employers to justify why they won't improve pre-97 indexation if they plan to use their surplus.

It is unclear what the final plans will look like and when they would come into effect at this stage, though.

If you are not sure what your pension schemes' indexation is or what kind of pension you have, contact your pension provider or speak to your employer.

Your company's HR should have information about your pension if you can't find your paperwork.

What else is going on with pensions?

Pensions have been a hot topic over the past few years, with a number of reforms announced by the government.

The government announced a last year that aimed to boost retirement income for millions of people by an average of £11,000, although this has been delayed.

There are also ongoing discussions around how a last year could affect DB pension schemes, after it found Virgin Media had not got changes to its pension scheme signed off correctly.

Pensions are often the subject of administrative errors, too.

For example, the DWP is currently working through that have left retirees out of pocket.

One of those is the

HRP was a scheme to protect parents who were not able to earn and pay National Insurance because they were raising children.

And last week, it was revealed that could miss out in retirement after a major blunder which meant they did not receive vital paperwork by the correct deadline.

Prev Article

CBN defends naira against dollar with $197m intervention amid Trump’s tariffs

Next Article

We live in a 1-bed & wanted our baby to have her own space so turned the cupboard into her room, it’s small but perfect

Related to this topic:

Comments (0):

Be the first to write a comment.

Post Comment

Your email address will not be published. Required fields are marked *