The call comes as DB schemes are enjoying their largest aggregate surplus in years, and the government is seeking to provide more flexibility over accessing this money.
The AMNT, in its response to the government’s consultation on options for DB schemes, called for schemes to take the opportunity to restore members’ pensions to their real inflation-proof value alongside improving employer covenants.
The association argued that the main purpose of any pensions policy must be to ensure that working people retire with sufficient pension, which for the average worker is equivalent to two-thirds of their pay.
However, government pension policy was “failing to take this vital measure into account”, according to the AMNT’s co-chair Maggie Rodger.
In its consultation response, the association said: “The experience of pensioners in DB schemes in the last two years, or over a much longer period for those with pre-1997 pension accrual (where around 24% have no indexation rights) has largely been a significant fall in their pensions in real value for the rest of their lifetime.
“This follows on from years in which DB scheme members’ contribution levels have been raised and in many cases, accrual rates reduced, as their part of funding a deficit situation, alongside employer deficit contributions.
“We are therefore concerned that in any discussion of a surplus, not only should the security of member benefits be as assured as is possible, but also their income shortfall through lost inflation linking, reduced accrual rates and higher contributions towards lower pensions, which have all helped to build any surplus, be recognised and should be addressed.”
According to the Pensions Regulator, trustees “should look at their overall position, the resilience of their investment strategy to future financial market movements, and the level of covenant support” when considering surplus options including discretionary increases.
“Trustees should be aware of members who would benefit from any decision to award a discretionary increase, and whether their scheme has a history of paying discretionary increases,” the regulator said in its latest annual funding statement data release.
A contentious issue
In 2022, as the CPIH measure of inflation hit 9.6%, industry experts warned that the cost of paying discretionary increases could have reached £18bn. However, over the past two years, private sector DB schemes have built up an aggregate surplus of more than £450bn, according to the latest data.
Over the past 20 years, there have been several high profile cases of members challenging decisions not to award inflation-linked increases on pre-1997 benefits.
Most recently, members of oil giant BP’s pension scheme took their case to the Work and Pensions Select Committee as they campaigned against a decision to delink their benefits from inflation, a decision they argued had reduced their expected pension payments significantly.
Members of the Electricity Supply Pension Scheme launched a campaign in 2022 calling for discretionary increases to help them with the rising cost of living, while Hewlett Packard and 3M have also come under pressure in recent years over discretionary increases.
Further reading
Support for government surplus access plans (11 April 2024)
WPC recommends changes to governance surplus rules (26 March 2024)
MP criticises BP leadership for ‘dealing from the bottom of the deck’ on pensions (18 January 2024)
Cost of discretionary increases to combat inflation could hit £18bn (22 June 2022)
