I’m still working at 78 – 260k pensioners miss out as PPF lifeboat fails to match inflation

Up to 260,000 pensioners whose former employers have gone bankrupt are about to suffer a second massive blow to their income that will cost them thousands of pounds because their pensions are not linked to inflation.

When an employer goes under, a lifeline called the Pension Protection Fund (PPF) acts as a safeguard for savers in defined benefit or defined benefit plans by guaranteeing that they will pay their retirement.

These types of pensions pay a guaranteed income at retirement, which typically increases with inflation.

But an overlooked part of the PPF rules means that more than a quarter of a million people in the fund have no protection against rising prices.

One pensioner, 78-year-old Mike Wilding, told us he has to keep working to top up his pension, which is increasing by just £100 a year, despite originally retiring when he turned 65. You can read his story below.

Inflation has been eye-wateringly high for two years, resulting in two consecutive blows to their purchasing power.

Last year inflation would have eroded their income by 10.1 percent, and this year’s inflation magnifies that loss by another seven percent.

In some cases we’ve seen, pensioners will be denied a total of more than £5,100 in pension increases this year and next.

This is because the amount their pension increases each April is capped at 2.5 percent or frozen altogether, leaving their income far behind the price increases.

With inflation remaining high, for the second consecutive year their pensions are seeing thousands of pounds of purchasing power fall.

The PPF told The Mail on Sunday and This is Money that raising the inflation cap to 2.5 per cent would cost the scheme £4.3 billion, while a 5 per cent cap would increase liabilities by £7.7 billion.

A spokesperson says: “We have provided the government with our assessment of linking pre-1997 compensation to inflation.”

Campaigners have branded the surveillance as ‘age discrimination’ as it is likely to affect many retired Britons now in their late 70s and 80s.

Campaigning group the Deprived Pensioners Association (DPA) has calculated that 60,000 people will receive no inflation hikes at all, meaning their retirement income will be permanently frozen.

Another 80,000 retirees receive only partial increases. This is because contributions paid to a pension before 1997 do not enjoy inflation protection under the PPF scheme. All contributions made after this date will accrue an annual increment of 2.5 percent as per the rules.

However, this is only half of what they could have gotten if their employer hadn’t gone bankrupt. Many private sector defined benefit plans tie payments to inflation, capped at 5 percent.

The Bank of England does not expect inflation to fall to its target of 2% until early 2025.

No choice: At age 78, Mike Wilding is still working to supplement his retirement

I’m still working at 78 after my pension fund collapsed

Among those affected is 78-year-old Mike Wilding from Cirencester, Gloucestershire, who had no choice but to continue working to supplement his pension, despite originally retiring when he turned 65.

His pension, which is part of the PPF, is rising by just £100 a year, meaning his purchasing power is rapidly being eroded.

Had his pension been fully inflation protected, he would have received a £2,929 increase in April this year and a further increase of £2,235 in April 2024.

Mowlem, the construction company he worked for, was bought out by Carillion in 2006, and the pension he had been paying since 1966 was cut short three years later, shortly before his retirement.

Mike receives an income of £29,000 each year from the PPF for his 43 years of pension contributions. However, 30 of those years fell before the PPF threshold in 1997, which means that only a small part of his pension is index-linked.

“I’ll be 79 in October and I’m still working several days a week to keep my annual retirement income at what it would be if it were linked to inflation.”

Mike, who works as a construction site consultant, fears he will have to continue until he is 80, and is concerned about the value of the pension he will be able to leave his wife, who is younger.

Does the PPF have to make a one time payment for living expenses

Ros Altmann, a former pensions minister, says the rule is a “big disappointment” and urges the PPF to make a one-off cost-of-living payment to those under its umbrella to help them through the crisis to help out. “That would help make it more affordable and tastier.”

She adds that the erosion of their promised pension value is more serious than thought because inflation was not expected to rise.

In addition to those in the PPF, 120,000 retirees whose occupational pensions failed before the PPF was created are also believed to suffer from a loss of indexation. Their payments are managed by the PPF’s predecessor, the Financial Assistance Scheme.

Now the DPA has called for a review of the law and urged the government to correct a historic mistake. Founder Roger Sainsbury says: ‘There are 260,000 people who suffer from age discrimination. It is unjust, unfair and causes major problems in these times of high inflation.’

Employees who contributed to the creation of the fund also lose

Others affected by the pre-1997 clause include about 1,000 former employees of Allied Steel and Wire, which went bankrupt in 2002. no inflation protection.

Terry Monk, of campaigner the Pensions Action Group, says those in their 70s are likely to see their entire pensions frozen today. “They have fallen to 50 percent of what they expected, and with the current inflation, they will very soon be getting less than half of what they should have. If you don’t have a high pension, that’s very unfair.’

If a company goes bankrupt and someone above the retirement age of the company’s plan falls under the protection of the PPF, he or she will receive 100 percent of the pension paid.

However, if the participant is younger than the retirement age or retires earlier, he will receive 90 percent of what he was promised.

A PPF spokesperson says: ‘We are very aware and sensitive to the impact of inflation on our members. The way in which PPF compensation is increased is laid down by law.’ He added that any changes would make the PPF less financially resilient.