Defined benefit schemes

A defined benefit scheme is protected by the Pension Protection Fund (PPF). A scheme will only transfer to the PPF if it does not have enough assets or money to buy at least PPF levels of compensation from an insurance company (www.ppf.co.uk).

A scheme will not transfer to the PPF if:

• the scheme is rescued (a new employer takes on responsibility for the scheme), or

• the scheme has enough assets or money to buy benefits with an insurance company which are at PPF levels of compensation or above.

If the scheme goes into the PPF, employees receive a guaranteed minimum level of compensation.

Employees who have passed their scheme’s normal retirement date will be paid their pension in full.

Employees who have retired early or have yet to retire will receive a pension equal to 90% of the value of the pension they were promised. The PPF has a cap on this 90% compensation. From April 2019, the cap at age 65 is £40,020, which means the pension is protected up to £36,018 per year (taking into account the 90%).

Annual increases in compensation may be different to the increase employees would have received from their pension scheme.