Pensions protection

The risk that employers become insolvent, defaulting on their DB pension commitments, led to the creation of the Pension Protection Fund or PPF (Pensions Act 2004). It is supported by a two-part levy paid by eligible schemes: a risk-based protection levy which goes towards PPF compensation payments and an administration levy (www.pensionprotectionfund.org.uk/Pages/homepage.aspx).

The PPF provides compensation to members of eligible schemes and by March 2013 had helped approximately 176,000 members (not including schemes currently in assessment), with total claims having reached around £4 billion. It also oversees the Financial Assistance Scheme (FAS) set up to deal with cases arising before the PPF was in place.

Anyone under the scheme’s normal pensionable age when the employer becomes insolvent is paid 90% of their expected scheme pension subject to a compensation cap. Among a number of specific changes, the Pensions Act 2014 (Part 6, Section 50 and Schedule 20) increased that cap for anyone with 21 years or more of pensionable service. It will go up by 3% of the standard amount for each full year over 20 years, to a maximum of double the standard amount. Transitional measures apply and anyone affected should check what the changes will mean for them.