The Society of Pension Professionals (SPP) has warned against a “blanket” legislative change to mandate indexation on defined benefit (DB) pension rights accrued before 1997.
In a new paper, the SPP argues that imposing such an obligation retroactively risks “substantial challenges and unintended negative consequences,” particularly for schemes already in deficit. The society maintains that decisions on discretionary increases should remain a “scheme-specific issue” for trustees and sponsors to negotiate.
The paper, “Government Policy or Scheme Discretion?”, is published as pensioner action groups from schemes, including BP and Hewlett, lobby for a law change. The campaign has gained traction as the Pension Schemes Bill progresses, which includes new flexibilities for accessing DB scheme surpluses.
Jon Forsyth, chair of the SPP’s DB Committee, said that while many pensioners have seen an “erosion of value,” a forced legislative fix would be unfair to employers who have “borne the risks associated with their DB schemes and often… paid large sums in deficit contributions.”
Instead of mandating new permanent liabilities, the SPP has urged policymakers to make a different legislative change, allowing schemes to grant one-off discretionary lump sum payments from surpluses.
The SPP argues this is currently not possible as it would be treated as an unauthorised payment. The report suggests this change would be highly beneficial for several reasons:
- Sponsors: They would be more likely to agree to one-off payments, which offer “certainty of cost” and avoid the negative accounting implications of committing to future pension increases.
- Members: They are “highly likely to value a one-off lump sum payment” more than a small, complex increase to just one part of their pension .
- Trustees: It would be easier to weigh up how to spend a discretionary fund in an “equitable way” across the entire membership.
SPP warns MPs against scrapping salary sacrifice
The SPP paper highlights the “looming pensions adequacy crisis” for the Defined Contribution (DC) generation, noting that 15 million working-age people are not saving enough for retirement.
The society questions the fairness of “going back to further protect historical benefits for DB members” when surpluses could potentially be used to enhance DC contributions for current employees.
Forsyth added: “In our view, policymakers should instead continue to focus on the adequacy of pension provision for future generations.”
The report also addresses calls for the Pension Protection Fund (PPF) to use its £14bn “surplus” to provide pre-1997 indexation for its members.
The SPP cautions that the PPF’s reserve is “not a ‘surplus’ in the traditional sense” but a crucial reserve against future scheme failures.
Should a change be made, the SPP strongly recommends that it only applies to members who were transferred from schemes that already provided such increases, to avoid members receiving a “windfall” in the PPF that is higher than their original scheme benefit.
