The Pension Protection Fund
The PPF is the compensation scheme for Final Salary Pension benefits if the company (your employer) goes into administration.
Broadly speaking the Pension Protection Fund will provide two levels of compensation which are outlined below.
1. For individuals that have reached their scheme’s normal pension age or, irrespective of age, are either already in receipt of survivors’ pension or a pension on the grounds of ill health, the Pension Protection Fund will generally pay 100% level of compensation.
In broad terms and in normal circumstances, this means a starting level of compensation that equates to 100% of the pension in payment immediately before the assessment date (subject to a review of the rules of the scheme by the Pension Protection Fund).
The part of this compensation that is derived from pensionable service on or after 6 April 1997 will be increased each year in line with inflation capped at 2.5%*. This could, potentially, result in a lower rate of increase than the scheme would have provided.
2. For the majority of people below their scheme’s normal pension age the Pension Protection Fund will generally pay 90% level of compensation.
In broad terms and in normal circumstances, this means 90% of the pension an individual had accrued (including revaluation) immediately before the assessment date (subject to a review of the rules of the scheme by the Pension Protection Fund) and revaluation in line with the increase in the inflation between the assessment date and the commencement of compensation payments, this revaluation being subject to a cap of 5% compound per annum in respect of compensation attributable to pensionable service prior to 6 April 2009, and a cap of 2.5% compound per annum in respect of compensation attributable to pensionable service on or after 6 April 2009.
This compensation is subject to an overall annual cap, which, as at April 2011, equates to £29,897.42 at age 65 after the 90% has been applied. (The cap will be adjusted according to the age at which compensation comes into payment. Please refer to the current compensation cap factors for caps applicable at other ages).
Once compensation is in payment, the part that derives from pensionable service on or after 6 April 1997 will be increased each year in line with inflation, capped at 2.5%. Again, this could result in a lower rate of increase than the scheme would have provided.
In addition there will also be compensation for certain survivors.
*IMPORTANT
The way in which PPF compensation is calculated changed in 2011. This is because the Government has chosen to use the Consumer Prices Index (CPI) with which to calculate annual increases, rather than the Retail Prices Index (RPI).