Source · Select Committees · Public Accounts Committee
Recommendation 8
8
Rejected
AEAT pension members lose significant real value due to inadequate inflation protection in PPF.
Conclusion
Since the scheme entered the PPF, members have lost money in real terms each year because the compensation they receive does not include rises for inflation. PPF compensation initially provides members 100% of their pension if they had already reached the scheme’s normal pension age, or 90% for those who had not. Compensation on pensions earned after 6 April 1997 increases each year in line with inflation, up to a maximum of 2.5%. However, benefits accrued before 6 April 1997, including all benefits transferred in 1996, are not increased for inflation at all.13 Scheme members who wrote to us described the damaging effects of the loss of inflation protection on many years of pension benefits, in one case losing over 40% of their pension in real terms.14 We asked 6 Q 2 7 C&AG’s Report, para 1.10 8 Qq 15, 20, 23–26, 53 9 Q 32; C&AG’s Report, para 1.9 10 Q 33; C&AG’s Report, para 1.11 11 Qq 52, 54–55 12 Q 54; C&AG’s Report, para 1.13 13 Q 79; C&AG’s Report, para 2.6 14 ATC0001; ATC0004; ATC0016; ATC0022 AEA Technology Pension Case 9 DWP whether the mechanism used to provide restitution for Equitable Life pensioners could be used in this case. DWP was unable to comment on any comparison to Equitable Life, but responded that the PPF was the mechanism government had set up to provide compensation in cases such as AEAT’s.15 The government’s response to complaints
Government Response Summary
The government rejects the recommendation, stating that changing the Pension Protection Fund indexation rules would require legislative change and is therefore a policy matter on which they cannot respond further.
Government Response
Rejected
HM Government
Rejected
1.1 The government disagrees with the Committee’s recommendation. 1.2 Pension Protection Fund indexation rules are set out in paragraph 28 of Schedule 7 to the Pensions Act 2004. The indexation rules broadly reflect the legal requirements for defined benefit pension schemes, that is compensation based on benefits accrued after 6 April 1997 is increased in line with prices, capped at 2.5 per cent. The legislation came into force on 6 April 2005 when the Pension Protection Fund became operational. Therefore, as referenced in paragraph 6.5 of HM Treasury guidance, Parliamentary scrutiny of public spending, the department cannot respond further to this recommendation as to change these indexation rules would require a change in legislation and is therefore a policy matter.