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Pension security

The Pension Protection Fund

The Pension Protection Fund (PPF) was set up by the Government to protect the benefits of members. If you are a member of a defined benefit or cash balance scheme, and your employer goes out of business leaving the scheme without enough money to pay the benefits due, the PPF may pay you compensation.

The Pension Protection Fund (PPF) was set up on 6 April 2005 to protect members who had defined benefits (i.e. final salary type benefits) in a workplace pension scheme, where the employer became insolvent on or after this date and the pension scheme could not afford to pay those benefits promised to members on wind up.

For employers with defined benefit workplace pensions,  becoming insolvent after 6 April 2005, the pension scheme can apply for PPF compensation if they meet the PPF rules.  If a pension scheme applies to the PPF for compensation, this period is known as the 'assessment period'.

To meet the PPF rules, there must be insufficient pension scheme assets to meet at least the PPF level of benefits when buying member benefits with an insurance company.

If your pension scheme qualifies, compensation of 90% of benefits for members below Normal Retirement Age (NRA) is paid by the PPF. Those over NRA would qualify for 100% of benefits and those on ill-health early retirement pensions. Anyone receiving survivor’s pensions, such as a widows/widowers/children's/civil partner’s pensions will also normally qualify for 100% of benefits.

Any compensation paid will be increased in line with legislation and not with the former scheme rules.

PPF does not apply to defined contribution workplace pension scheme benefits (money purchase benefits).

For more details about the PPF, visit their website - www.pensionprotectionfund.org.uk.

Frequently asked...

When PPF compensation is in payment, will it increase?

PPF compensation will be limited to pensionable service built up from 6 April 1997 only and pension increases in payment will increase in line with inflation, capped at a maximum of 2.5%.

What happens if my scheme is potentially eligible for the PPF?

Where a pension scheme applies to the PPF, they go through an assessment period before entering the PPF. The PPF aim to complete assessment for most schemes within two years. During the assessment period, the PPF will decide whether or not it would accept the scheme.

The main purpose of the assessment period is to see whether it is possible for the scheme to be rescued; but also to see whether the scheme has sufficient assets to provide benefits at least as good as PPF compensation on buying those benefits with an insurance company.  If either of these were possible, then there would be no need for the PPF to assume responsibility.

Can I continue to contribute during the assessment period?

During the assessment period, no further contributions can be paid, no new members admitted, no transfer of benefits out of the scheme would be allowed unless an application was made before the assessment period and the trustees agree to the transfer and no further benefits can build up. Any benefits paid by the scheme during the assessment period must be no more than the PPF would pay.

During an assessment period can I transfer out of my scheme?

Typically members cannot transfer out once the scheme enters the PPF assessment period unless an application to transfer out has been made before the assessment period and the trustees agree to the transfer.

Where can I find out more?

If you need more information, please contact us. A pension specialist from our team will be happy to help with whatever pensions-related question you have. Our help is always free.

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