The government has proposed introducing capped Consumer Price Index (CPI) increases for pre-1997 benefits paid by the Pension Protection Fund (PPF) and the Financial Assistance Scheme (FAS). If implemented, the change would address a long-standing gap in inflation protection for affected members and has implications for trustees, advisers and member communications as the legislation progresses.
What is changing?
Under current PPF/FAS legislation, pension benefits are treated differently depending on when they were accrued. Benefits earned from April 1997 onwards are subject to statutory indexation [Dentons1] requirements,[1] while earlier service receives no such guarantee, irrespective of what the original scheme rules may have said.
Over time, and particularly during periods of higher inflation, this has led to a steady erosion in the real value of many PPF/FAS members’ pre-97 benefits. The resulting disparity between pre- and post-1997 increases has been a source of sustained criticism from member groups, unions and industry bodies, particularly given the significant numbers of PPF and FAS members with substantial pre-97 accrual.
The government has indicated that it intends to address this issue by introducing prospective CPI-linked increases capped at 2.5% per year on pre-97 benefits paid by the PPF and FAS, with a proposed start date of January 2027. The measure has been tabled as an amendment to the Pension Schemes Bill but remains subject to Parliamentary approval and the legislative timetable.
Why now?
Calls for reform have been made for many years, but several factors have aligned to make change more achievable.
First, the PPF’s financial position has strengthened significantly. This has been underscored by its recent confirmation of a zero levy for most schemes in 2026/27, reflecting the scale of its surplus and increased confidence in its long-term funding position. For further discussion of the implications of the PPF’s zero levy position, see our post available here.[2]
Second, pensions policy has increasingly focused on fairness and outcomes, particularly for members whose benefits have been affected by employer insolvency. The absence of inflation protection for pre-97 service has been viewed as producing disproportionate outcomes for some members, particularly where the original scheme rules would have provided some form of indexation prior to PPF or FAS entry.
Finally, the reform can potentially be delivered alongside the wider legislative programme currently progressing through Parliament, including the Pension Schemes Bill, which may provide a mechanism for implementing the necessary changes through secondary legislation.
How would the reform work in practice?
Under the current proposal, pre-97 benefits paid by the PPF and FAS would receive CPI increases capped at 2.5% per year. In practice:
- most affected members would see modest annual increases;
- increases would reflect inflation, but would not fully track it; and
- the uplift is expected, so far as practicable, to reflect the indexation that would have been guaranteed under the original scheme rules.
The policy intention is not to introduce a universal uplift for all pre-97 service, but rather to mirror the level of protection members might reasonably have expected had their scheme not entered the PPF. Even so, capped CPI increases would, for many members, slow the long-term decline in real-terms income.
Practical implications for trustees and advisers
Although the reform applies only to PPF and FAS members, it has wider implications across the pensions landscape.
The PPF and FAS will be responsible for implementation, including confirming eligibility, updating administration systems and preparing member communications. While some preparatory work can begin in advance, the final approach will depend on the detail of the legislation and any accompanying guidance, and there is likely to be a period of technical refinement before the changes are implemented.
The announcement may also prompt renewed scrutiny of the treatment of pre-97 service more generally. Trustees and sponsors of private defined benefit schemes may face increased questions around discretionary increases, particularly where schemes are well funded or in surplus. Trustees may also see increased member engagement around benefit projections and the potential interaction between any uplift and tax positions or means-tested benefits. However, for members whose pre-97 benefits were subject only to discretionary (rather than guaranteed) increases under their original scheme rules, the practical impact of the PPF/FAS reform will be limited.
What should members expect next?
The timing of the reform remains dependent on legislation. While January 2027 remains the government’s stated target, delivery will be shaped by the progress of the Pension Schemes Bill and subsequent regulations.
PPF/FAS members should also expect variation in how increases are applied, as any uplift is likely to reflect the rules of their original scheme. Some individuals may receive CPI increases up to the cap, while others may see more limited adjustments. It is also important to note that capped CPI increases do not remove inflation risk entirely – in years where inflation exceeds 2.5%, protection will remain partial.
Further detail is expected as the legislative process continues. The PPF has indicated that it will work closely with government to support implementation and ensure clear communication. In the meantime, trustees and sponsors should prepare for increased engagement as individuals assess how the reforms may affect their benefits.
Lucy Cleary is a Trainee in the Dentons Pension team, based in the London office – for any further queries in relation to the above, please contact lucy.cleary@dentons.com
[1] Being CPI capped at 2.5%, and which may be less than generous than would otherwise have applied for post-1997 benefits.
[2] https://www.dentons.com/en/insights/articles/2025/october/21/zero-levy-not-zero-risk
