Chancellor of the Exchequer Rachel Reeves said former mineworkers will receive £1.5bn of money that was kept back from their pensions while delivering her first Budget speech on Wednesday.

Energy Secretary Ed Miliband confirmed that the move will mean a 32% boost to the annual pensions of 112,000 former mineworkers – an average increase of £29 (€34.50) per week for each member.

The investment reserve fund was set up using profits from the scheme in 1992, to provide a buffer in case the Mineworkers’ Pension Scheme went into deficit. This money was due to be returned to government in 2029.

Former mineworkers and their families, as well as politicians, have fought for the fund surplus rules to be renegotiated for many years. In a landmark decision, the fund – now worth £1.5bn – will be handed over to the pension scheme.

When British Coal was privatised in 1994, the government also agreed to take half of any profits generated by the pension scheme, in return for a guarantee that pensions would increase in line with inflation.

The scheme has continued to produce strong returns and the government has never paid any funds into it. As a result, the government said it is also delivering on its commitment to review this agreement to ensure former miners and their families get a “fairer deal in the years ahead”. The government added that next steps will be set out in the coming months.

The mineworkers pension scheme said that the bonus will be backdated to 18 November. It added that the new bonus pensions will not increase and it is not protected, meaning it could be reduced if there is a deficit to scheme at future valuation.

Milliband said: “We owe the mining communities who powered this country a debt of gratitude. For decades, it has been a scandal that the government has taken money that could have been passed to the miners and their families.

“Today, that scandal ends, and the money is rightfully transferred to the miners. I pay tribute to the campaigners who have fought for justice - today is their victory.”

Minister for Industry Sarah Jones said: “Miners powered our industries and our homes for decades. That’s why we have to right the wrong that has denied them the decent pension they deserved.

“We are handing over the £1.5bn that for years has sat in the reserve fund unused at times when people needed it most. This will end an historic injustice and will ensure members of the scheme see an average increase of £29 per week added to their pay – an increase of 32%.”

The trustee of the scheme welcomed the news.

Gary Saunders, chair of the Trustees of the Mineworker’ Pension Scheme, said: “We are also grateful to the many members and MPs who have shown support of the Scheme on this matter over the years.”

Allen Young, pensioner representative trustee for the North East of England and Overseas members, said: “The government’s decision to make good on this part of its manifesto commitment in respect of the scheme is a very positive development for our members.

“The Trustees will use the Investment Reserve to increase our members’ pensions and we will be writing to all members with the good news very shortly.”

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