Discretionary Benefits Survey Results

A recent PLSA survey has found that one in three DB pension funds have made discretionary payments during cost-of-living crisis. The survey conducted a few weeks ago is aimed at helping DB scheme trustees understand how their peers are treating pension increases during the recent period of higher inflation.

DB pension schemes promise to pay pension benefits based on a member’s salary and length of service. Pension increases help to preserve the spending power of a pension once it is payment. Final salary pension schemes have, since April 1997, been legally required to provide a minimum level of increase – usually 2.5% or 5% annually depending on when the benefits were accrued.

However, scheme rules may give trustees, the scheme’s sponsoring employer, or both, the discretion to make increases over and above the legal minimums, or to uprate a pension earned before 1997.

The survey results also included:

• The main types of payment being offered by schemes are temporary increases in indexation for some members (28%) and one-off cost of living payments (24%).
• One in seven have paid one off discretionary benefit changes, while one in 10 have paid temporary increases in indexation for all members and a similar number have made permanent changes to scheme benefits.
• Two-thirds of schemes surveyed said the cost-of-living crisis has encouraged them to consider paying pre-1997 benefits, while improvements in scheme funding have encouraged half to consider paying pre-1997 benefits.