Scheme members who have fallen into the Pension Protection Fund or Financial Assistance Scheme will get CPI-linked increases up to 2.5% a year on pre-1997 pension accrual from January 2027 “where their original schemes provided this benefit”. 

Reeves said this is so people who entered these schemes through no fault of their own “no longer lose out” as a result of inflation. 

This comes after the cost of providing retrospective PPF uplifts has come down to £3.9bn from £5.5bn, while the prospective uplifts cost has reduced to £1.2bn from £1.9bn - and after union Unite called for the change.

In the Budget document, the measure is set to be worth £1.51bn by 2030-31. The PPF said about 165,000 PPF and 91,000 current FAS members have some pre-97 benefits where their former schemes provided mandatory indexation.

PPF chief executive Michelle Ostermann said: “This is the right time to make this change to enhance the inflation protection for our members. Twenty years on from the creation of the PPF, we’ve matured and now stand in a strong financial position. While risks do remain, we’re confident we can absorb this change without compromising the high security we provide for members’ benefits or impacting our plans to set a zero PPF levy next year.” 

 

Legislation currently going through parliament will allow the lifeboat fund to reduce the PPF levy to zero in 2026-27. It has already been zero-rated for 2025-26.  

   

    

The policy change is significant, said Pensions UK executive director of policy and advocacy, Zoe Alexander, and addresses fairness concerns for people affected by scheme failures.

“The PPF is unquestionably well capitalised and we’re reassured the PPF has said it can fund the move. But Pensions UK warns against the cost of this policy change being applied to DB pension schemes via the PPF levy, should the funding position of the PPF deteriorate in the future,” she said.

Given the PPF’s £14bn reserve, controversially, the increase will effectively be possible thanks to contributions made by schemes whose members may not receive pre-97 uplifts.

Some noted that the reserve could be refunded. David Robbins, director at consultancy WTW, said: “To no-one’s surprise, the Budget said nothing about using the PPF’s strong financial position to refund the levy payers who were charged more than the PPF expected to need in order to make it more confident that it could withstand shocks.”

He also observed that members whose schemes had enough money to buy out a higher level of benefits with an insurer after employer insolvency – a so-called PPF+ deal – could be worse off now because their scheme was better funded and stayed out of the PPF.

The Society of Pension Professionals welcomed the news about pre-97 increases. Jon Forsyth, chair of the DB committee, said: “As we made clear in our recent paper, individual schemes should be able to make decisions about whether or not to apply pre-1997 indexation and by making this legislative change, the PPF and FAS will now have such freedom.”

How the pre-97 uplift is delivered in practice is key, said Calum Cooper, head of pension policy innovation at Hymans Robertson.

“One positive unintended consequence is that it means the PPF’s coverage is now as near to 100% as it has ever been. As a result, companies and trustees may want to reflect on their appetite for creating and sharing value via running the DB schemes on, given that the downside risk is now reduced,” he said.

Cooper added: “On the other hand, thought and care will be needed to ensure that the superfund market can continue to thrive – it will make sense to think carefully about their capital thresholds and where that needs to be in light of this change. For example, done bluntly those that should benefit most from the PPF compensation change may miss out on full benefits by virtue of pushing the price of superfund out of reach – clearly an unintended consequence.”