Pension Protection Fund

The Pension Protection Fund was established to pay compensation to members of eligible defined benefit pension schemes, when there is a qualifying insolvency event in relation to the employer and where there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation.  The current levels of compensation are described here.

The key features of the compensation are:

• For those already receiving a pension: Payments relating to pensionable service from 5 April 1997 will rise in line with inflation each year, subject to a maximum of 2.5 per cent a year. Payments relating to service before that date will not increase. (In broad terms, £1,000 of pension accreued pre-April 1997 would increase in 10 years, under the HPS 5% increase, to £1,629 but would remain at £1,000 under the PPF compensation rules).
  
• For those yet to receive a pension: Compensation will be based on 90% of the expected pension subject to a cap (see below) and payments relating to service prior to 5 April 1997 will not increase
• The cap at age 65 is, from 1 April 2015, £36,401.19 (this equates to £32,761.07 when the 90 per cent level is applied) per year. The earlier you retired, the lower the annual cap is set, to compensate for the longer time you will be receiving payments.

We have also prepared a simple spreadsheet so that individual scheme members can see the impact of a transfer of HPS to the PPF assuming that the present PPF rules are unchanged. The Daily Telegraph recently published an informative article about the PPF which makes interesting reading. 

The PPF monitors the heath of pension schemes on a monthly basis and the most recent report stated:
•    The aggregate deficit of the 5,945 schemes in the PPF 7800 Index is estimated to have increased over the month to £249.4 billion at the end of November 2015, from a deficit of £244.4 billion at the end of October 2015.
•    The funding ratio declined from 83.6 per cent to 83.4 per cent.
•    Total assets were £1,253.8 billion and total liabilities were £1,503.2 billion.
•    There were 4,751 schemes in deficit and 1,194 schemes in surplus.

The PPF does not promise to maintain the same level of compensation in the future. The financial health of PPF will tend to deteriorate because it is the pension schemes with the biggest deficits which will be transferred to the PPF.