Pension Protection Fund
The Department for Work and Pensions introduced the Pension Protection Fund (PPF) in April 2005.
The PPF is run by an independent board to protect members of private sector defined benefit schemes where employers become insolvent with insufficient funds in their pension scheme to provide full accrued benefits. The PPF is intended to provide compensation in two areas where the terms and condition of the PPF are met:
- 100% of the original pension promise for members who have reached the scheme’s NRD.
- 90% for any member receiving benefits via early retirement and deferred members below the scheme NRD subject to an overall benefit cap.
Once compensation is being paid, then 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. Payments relating to service before that date will not increase.
The revaluation of all deferred rights in line with CPI capped at 5% per annum between the assessment date and the commencement of the compensation payments will also be provided for pensionable service prior to 6 April 2009 and a cap of 2.5% in respect of compensation linked to pensionable service on or after 6 April 2009. In addition it will include survivors’ benefits for married and civil partnerships in most cases.
This compensation is subject to an overall annual cap which equates to £30,644.85 at age 65 for the 2012/2013 tax year after the 90% cap has been applied.
Compensation will be funded by taking on the pension fund assets of insolvent employers and through a levy on all eligible Final Salary schemes.
