Pensioners in line for share of £2bn ‘gold-plated’ scheme payout
The bail-out fund created to protect members of ‘gold-plated’ pension schemes is to tell 330,000 former staff of bust firms they will share almost £2billion in compensation after their retirement payments failed to keep pace with rising prices.
In what one source described as a ‘huge exercise’, the Pension Protection Fund (PPF) will next month write to scheme members – many of whom are now in their late 70s or 80s – who lost out when their pensions did not rise in line with inflation.
They belong to defined benefit pension plans that pay a regular guaranteed income based on a worker’s salary and length of service.
These were popular before the turn of the century until they became too expensive for their sponsoring employers and were closed to new joiners.
Most firms tied their pension payments to the rate of inflation, meaning members would not be worse off in real terms.
But some refused to pay the benefit for service clocked up before 1997 because employers were not legally bound to do so.
A bid by Ros Altmann, a former pensions minister, to provide a lump-sum compensation to victims for the loss of pre-1997 inflation protection was defeated
That has now changed after the Pension Schemes Act became law last month. It allows the PPF, the industry-funded lifeboat, to make inflation-proof payments to eligible members of more than 2,000 schemes which had the pre-1997 benefit but whose sponsoring employers went bust.
The payouts average £300 per member a year and will be paid monthly from January next year. Future increases will be capped at 2.5 per cent.
Richard Nicholl of the Pensions Action Group said members had missed out on between £60,000 and £150,000 because their pensions were not inflation-proofed.
‘We’ve lost a hell of a lot,’ he told The Mail on Sunday.
But he added that recent stealth taxes imposed by successive governments meant many recipients would not notice the boost to their pensions. ‘The freezing of income tax allowances means the Government will get the payments straight back,’ he said.
A bid by Ros Altmann, a former pensions minister, to provide a lump-sum compensation to victims for the loss of pre-1997 inflation protection was defeated in the House of Lords.
‘A lump sum would have been better because most of the recipients are in their late 70s, 80s and even 90s,’ Nicholl said.
The new rules will cost the PPF £1.2 billion and up to £600 million for its predecessor, the taxpayer-backed Financial Assistance Scheme (FAS). All of the compensation will come from the PPF’s reserves of £14 billion.
But the payments will not be back-dated and, crucially, the law changes do not cover solvent employers.
Many of these firms are foreign multinationals that have skipped their index-linked pension obligations for years.
Nia Griffith told a Parliamentary Committee in December last year that the number of these firms that had ‘reneged on giving out index-linked pensions’ was ‘extraordinary’.
She said they included Goldman Sachs, KPMG, Chevron, 3M, Pfizer, AIG, American Express, Hewlett Packard Enterprise and Wood Group.
The PPF, which underwrites £1trillion of pension promises made by the 5,000 remaining defined benefit schemes, reckons the outstanding liability for these pre-1997 benefits is £100billion – which would be a big chunk of its £264 billion surplus.
A PPF spokesperson said: ‘The Government’s decision to enable us to pay inflation increases on pre-1997 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.’
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