The Pension Protection Fund (PPF)
Managed independently, The Pension Protection Fund (PPF) was set up in April 2005 by the government to protect you if your employer goes bust, and it's pension scheme can no longer to afford to pay your promised pension.
Many of our clients have Defined Benefit Schemes, and they are covered by The Pension Protection Fund (PPF). One of the potential drawbacks to transferring your Defined Benefit Scheme is you will LOSE the protection from the PPF.*
Am I Eligible?
Employers with a Defined Benefit Pension becoming insolvent after April 2005, can apply for a PPF compensation if they meet the rules. To meet the criteria there must be insufficient pension scheme assets to meet the least PPF level of benefits when buying member benefits with an insurance company.
A scheme will not transfer to the PPF if:
The scheme is rescued, i.e 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 a pension scheme applies for compensation it is know as the assessment period.
What happens during the assessment period?
The assessment process usually starts as soon as your employer goes bust. If you haven't reached retirement, your pension payments will generally continue as normal. If your scheme allows, you may be able to take early retirement and start receiving your pension during this period. Your pension will be reduced to reflect the fact it will be paid over a long period.
During the assessment period, the trustees of your scheme will:
Work out how much money, and other assets, remain in the scheme.
Make sure that the details of all the scheme members are up-to-date and accurate.
They will recover what they can from the insolvent employer, by acting as a creditor on behalf of your pension scheme.
How is the PFF Funded?
An annual Pension Protection Levy paid by eligible pension schemes
Recoveries of money, and other assets, from insolvent employers of schemes that they take on (see our booklet Restructuring and Insolvency - The PPF Approach)
Taking on the assets of schemes that transfer to them, and
Returns on their own investments.
So, how does your compensation work?
So, how does your compensation work?
Each individual is different.
If you have retired, you will have been receiving pension from your scheme before it went bust. If you are beyond the 'normal retirement age' (65) when your employer goes bust the PPF will generally pay 100% level of compensation.
If you retired early, and have not reached 'normal retirement age' when your employer goes bust PPF will generally pay 90% level of compensation.
The annual compensation you will receive is capped at a certain level.
If you are yet to retire, when you reach your schemes 'normal retirement age', you will generally received 90% compensation.
Compensation will be capped as above.
They also assume in inflation rate of 3% each year.
When the PPF is in payment, will it increase?
PPF compensation will be limited to pensionable service built up from 6th April 1997 only and pension increases in payment will increase in line with inflation, capped at 2.5%.
Can I contribute during the assessment period?
During the assessment period, no further contributions can be made and no new members admitted.
During the assessment period, can I transfer out of my scheme?
Generally, members cannot transfer out once the scheme enters PPF assessment,
For more information, visit The Pension Protection Fund website.
*Reeves Independent do not give advice on transferring Defined Benefit Schemes, we refer any clients to a third party if they wish to discuss their Defined Benefit Scheme options.