What are discretionary increases?
Discretionary increases are extra rises to UK workplace pensions that the scheme may choose to pay, but does not have to.
Most people assume their pension “goes up with inflation”.
Sometimes it does, but in many defined benefit (DB) schemes, the law only forces increases on certain parts of the pension.
Discretionary increases matter most for the older part of a pension built up before April 1997. There was no legal duty to increase those pensions, so they can pay increases for those years only if the scheme’s rules allow it and they choose to do exercise their power.
Guaranteed increases: the ones you are entitled to under law and scheme rules.
Discretionary increases: optional top ups, usually considered when a scheme is well funded or sitting on surplus.
The Real-World Impact: Why Discretionary Increases Matter
For British pensioners residing overseas, particularly those in Southeast Asia, the absence of discretionary increases on pre-1997 service can lead to a substantial long-term reduction in the real value of their pension income. This cohort does not have access to means-tested top-ups such as Pension Credit, nor do they benefit from auxiliary support like the UK’s Winter Fuel Payment. Consequently, expats often rely heavily on their occupational pensions to maintain a reasonable standard of living.
When inflation rises, as it has markedly since 2021, any portion of the pension that remains fixed begins to lose its value in real terms.
- Consider a retiree with £10,000 in annual DB pension income.
- Without any inflation-linked increases, a cumulative inflation rate of 15% over five years effectively reduces their purchasing power by £1,500.
- Over a decade or longer, the compounding effect of inflation can result in a serious decline in financial stability.
- This issue is further exacerbated for expats – unstable exchange rates, high healthcare costs, or different inflationary profiles.
Even minor percentage-point discretionary increases, if granted annually, can have a big impact on your finances.
The BP Pension Dispute (or how not to treat your former employees)
Since 2022 until now, BP’s pension fund trustees, with the backing of the company’s leadership, are choosing not to award a 4% discretionary increase to scheme members, despite considerable inflation and a reported funding surplus. This sparked an organised response from affected pensioners, many of whom saw their pension’s real value decline rapidly.
Despite a longstanding policy to protect pensions from erosion by inflation if the BP Pension Fund had “sufficient resources”, BP has repeatedly vetoed Trustee recommendations for discretionary increases thereby inflicting a permanent 11% fall in the value of pensions paid to tens of thousands of BP’s UK pensioners.
BP Pension Group – 22/10/25
According to the BP Pensioner Group, the value of affected pensions fell by 11% in real terms over two years. This loss in purchasing power prompted the Group to initiate legal proceedings in December 2023 against senior BP executives and trustees. The case alleges a failure to protect members’ interests, despite the scheme’s financial capacity to offer inflation mitigation.
The matter reached national prominence in January 2024, when Pensions Minister Paul Maynard acknowledged the dispute in Parliament and committed to “look closely again” at how discretionary increase powers are exercised in such contexts. This intervention is rare, and signals that the Government recognises the broader implications for policy and regulation.
The BP case exemplifies the friction between trustee discretion, employer strategy, and member expectations and raises concerns about transparency and fairness in managing surpluses.
The Legal and Regulatory Framework: How Discretionary Powers Operate
In legal terms, trustees of occupational pension schemes must act in the best financial interests of members, within the confines of their powers as defined by the trust deed. These powers can vary significantly across schemes. Some require joint agreement between the trustees and the employer for any discretionary award; others may allow the trustees to act independently.
Where discretionary increases are permitted, legal precedent confirms they do not create entitlement. Even where such increases have been granted consistently for years, courts maintain that they remain discretionary unless the scheme rules state otherwise. Trustees must also:
- Consider inflationary trends and the adequacy of member benefits
- Evaluate the scheme’s long-term funding strategy and journey toward buy-out
- Weigh employer representations, particularly in the context of future contributions or solvency
- Comply with formalities, including documented resolutions and conflict-of-interest protocols
Crucially, they also must distinguish between different groups (e.g. pensioners vs deferred members), and may be justified in prioritising one over another, provided such decisions are well-reasoned and legally sound.
Many are dressed up in this way but in the end, the hard-working people are those left with empty pockets.
Adam, BA
A Narrowing Opportunity: Why Timing Matters
Discretionary increases are often impossible to secure once a scheme has entered buy-out or has been wound up. In a buy-out, pension liabilities are transferred to an insurance company, which issues individual annuities. These contracts are fixed: they provide only what is required under the scheme rules and cannot include ad hoc discretionary enhancements.
Therefore, the pre-buyout phase represents a closing window of opportunity. If you are in a scheme that has not yet secured all benefits with an insurer and still allows for discretionary increases, this may be the last realistic opportunity to seek one. Once the transaction is complete, the possibility vanishes.
This is particularly relevant for expats whose schemes are actively de-risking or approaching full funding. Early engagement, either individually or through pensioner groups, can influence trustee decisions while powers still exist.
Practical Recommendations for Expats
To avoid being caught off-guard, British expats should consider the following actions:
- Engage with your pension scheme: Ask specific questions about discretionary increases and under what conditions they may be awarded.
- Review the trust deed: Seek clarification on what your scheme’s rules say about inflation increases and whether pre-1997 benefits are protected.
- Organise with others: Join a group like the BP Pensioner Group. You need a collective voice like this to prompt UK Parliamentary discussion.
- Get expert advice: Get in touch with a regulated pensions advisor who understands both legal structure and cross-border implications.
- Monitor scheme communications: Don’t ignore related news articles, scheme newsletters or reports, as well as UK Government updates (you can subscribe to get emails on any topic from gov.uk).
Conclusion: Discretionary Increases Are a Justice Issue
While labelled “discretionary,” these increases represent the only hope of keeping pensions aligned with rising living costs. Coupled with a frozen State Pension for most expats, it means food in the fridge and warmth in the winter.
The refusal to grant them, despite clear capacity to do so, undermines trust in occupational schemes and creates a form of two-tier pension security. One group sees its benefits protected against inflation; the other does not.
For British expats, who are uniquely vulnerable due to geographic distance, currency exposure, and the absence of UK social welfare entitlements, this issue is essential. So we advocate for practical clarity and informed action.
We encourage all expats to examine their pension schemes closely, act before powers are lost, and stand collectively when transparency or fairness is lacking. Get advice now.
We will continue to monitor policy changes and legal developments, and provide regular updates tailored to the needs of the expat community.