PPF statement on pre-97 indexation Budget announcement

The Pension Protection Fund (PPF) has welcomed the government’s announcement that it intends to change the law to enable the payment of inflation increases on pre-97 pensions to PPF and Financial Assistance Scheme (FAS) members.

The government has said it will legislate to enable the PPF to pay inflation increases – also known as indexation – up to 2.5 per cent on pre-97 compensation / assistance payments to PPF and FAS members.

This would apply to those members whose original schemes provided for indexation on pre-97 pensions. The move would broadly align pre-97 indexation rules with those already in place for post-97 pensions for PPF and FAS members.

Changing the rules on pre-97 increases could benefit more than a quarter of a million (256,000) PPF and FAS members. The PPF assesses that around 165,000 PPF and 91,000 current FAS members have some pre-97 benefits where their former schemes provided mandatory indexation.¹

Kate Jones, PPF Chair, said: “We warmly welcome the government’s move to change pre-97 indexation rules for PPF and FAS members. We’ve long known the impact the absence of pre-97 increases has had on affected members. It’s been important for us to support positive outcomes for, and balance the interests of, our levy payers and members. We’re pleased that members’ voices have been heard, and the government has acted positively.”

Michelle Ostermann, PPF Chief Executive Officer 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.”

Sara Protheroe, PPF Chief Customer Officer, said: “I’d personally like to pay tribute to the member campaigners who’ve long advocated so powerfully for change. This positive move would make a meaningful difference to thousands of members’ lives. While implementing this change will be no small task, we’re fully committed to delivering this at the earliest opportunity if and when it becomes law.”

The PPF will continue to support the Department for Work and Pensions (DWP), and policy makers, as this amendment is considered through the remaining stages of the Pension Schemes Bill.

In parallel, a critical focus now for the PPF will be moving forward preparatory work to be able to implement this change as soon as possible after it becomes law. The PPF currently must apply increases to members’ payments in January each year. If the Bill becomes law next year (2026) as expected, the first opportunity to begin applying any changes to pre-97 indexation would then be January 2027. The final shape of any legislative change, as well as when the Bill becomes law, will influence the timescales for implementation.

The PPF will communicate this development to its members and keep them updated on progress over the coming months. When the Bill has become law, the PPF will be better placed to communicate directly with the members it expects will benefit from this change and to update further on its implementation plans.

-ENDS-

• Financial impacts – The PPF, in its most recent letter to the Work and Pensions Select Committee (WPSC), published in September, set out its latest estimates of the cost impacts of changes to pre-97 indexation. It estimated, as at 31 March 2025, the cost of introducing pre-97 indexation (capped at 2.5 per cent) for members of PPF / FAS schemes that provided for mandatory pre-97 indexation, on a prospective basis:
   - PPF: £1.2bn
  - FAS: c.£300-600m

• Reserve – The PPF intentionally holds reserves to cover future risks, such as potential future claims on the fund and longevity risk on our current pension liabilities. As such, the reserves represent a contingent liability which could crystalise if these events were to occur – it is not a traditional ‘surplus’. Holding suitable reserves is essential to ensure the PPF can provide financial security for its current and future members and reduce risks for levy payers. The PPF’s current £14bn reserve (as at 31 March 2025) ultimately underwrites the £1tr of liabilities in the c.5,000 remaining defined benefit schemes in the UK.

• PPF Levy 2026-27 consultation – The PPF recently launched its consultation on its plans for next year’s levy. In it, the PPF set out its to maintain a zero PPF levy for the c.5,000 conventional defined benefit (DB) schemes in the UK in 2026/27 dependent on the passage of the levy measures in the Pension Schemes Bill.