Ministers are being urged to review “grossly unfair” compensation arrangements affecting 83,000 elderly members of the UK’s pension lifeboat fund as the cost of living soars.
The Pension Protection Fund said it had received complaints from members over the lack of inflation protection on their retirement benefits as energy and food bills skyrocket.
The PPF, a government body part-funded by a levy on 5,500 corporate “defined benefit” schemes, was set up in 2005 to provide a safety net for members of failed company pension plans.
The PPF pays annual increases of up to 2.5 per cent on its compensation, however, these increases do not apply to pension benefits accrued before April 1997.
With the Bank of England forecasting that inflation could exceed 10 per cent later this year, PPF members who do not qualify for any annual increases in their compensation are worried that the purchasing power of their benefits is being significantly eroded.
Prospect, the union, said: “The secretary of state needs to urgently review whether the lack of inflation protection in this environment is reducing overall benefits below minimum legal requirements and take action to address it.”
Oliver Morley, chief executive of the £38bn fund, told the Financial Times that the government set the rules on PPF compensation but member complaints to the lifeboat were rising as inflation continued to shoot up.
The PPF lifeboat has around 288,000 members, of which around 83,000 pensioners have no indexation on their compensation because their benefits were wholly accrued before April 1997, meaning they do not qualify for any annual uplifts.
“My PPF pension has barely increased in the 10 years since I have been in the PPF because only 10 per cent is inflation-proofed,” said one 86-year-old member. “Last year my increase was just under £50. With prices going up, I am very worried.”
Tony Reading, a 70-year-old PPF member, said the situation was “grossly unfair” with most of his PPF pension not inflation-proofed.
“During my working life, I paid a 30 per cent higher pension contribution specifically to ensure that I would receive RPI inflation updates on my retirement income,” said Reading. “Two-thirds of my retirement income has no inflation protection. We have been shafted.”
In the last financial year, the lifeboat paid out £1bn in compensation to 180,000 PPF pensioners while collecting £630mn in levy funds.
The PPF also administers financial assistance to members of “defined-benefit” company schemes that failed before the fund’s launch in 2005, but this is taxpayer funded. In this group are 60,000 members who are also not receiving any indexation due to the pre-1997 rule.
“It is very clear to us what is going on today, in terms of members’ experience and challenges,” said Morley. “But equally we have to be conscious that there are limits as to what we can do. We have to effect the legislation as it stands.”
The PPF has built up £9bn in reserves that it is using to achieve self-sufficiency by its 2030 target date. Morley said any decision to use the £9bn to boost compensation would have a knock on effect for its wider remit to offer a safety net for 5,500 schemes with 9mn members.
“Our primary goal is to make sure we are able to pay those claims on us as opposed to expanding our remit,” said Morley. “These are not easy calls.”
The Department for Work and Pensions said: “We recognise the pressures on the cost of living and are doing what we can to help, including spending £22bn across the next financial year to support people across the country.”
It added that the PPF continued to play a “crucial role” in protecting people with a defined benefit pension when an employer becomes insolvent.