Our team of Pension Protection Fund lawyers can advise on everything from entry and rules to entitlements. Find out more here.

The Pensions Act 2004 introduced compensation for scheme members where the scheme has had to be wound up following the insolvency of the employer, and there is a shortfall such that their benefits would have to be cut back. 

This compensation is provided through the Pensions Protection Fund (“PPF”), and compensation under it is funded by a levy on all final salary occupational pension schemes. 

In brief, to qualify for compensation under the PPF, the following conditions must be satisfied:

  • The scheme must provide defined benefits;
  • The scheme must be winding-up, and there must have been an insolvency event in relation to the sponsoring employer; 
  • Winding-up must begin after 6 April 2005, and there must also be an insolvency event which takes place after that date;
  • The insolvency practitioner acting in relation to the employer must confirm that no scheme rescue is possible (ie no other employer is willing to take on its liabilities to the scheme);
  • There must be a shortfall in the scheme compared to the amount needed to provide the PPF scale of benefits;
  • All the assets and liabilities of the scheme then transfer to the PPF which would take over responsibility for paying benefits on its scale.

The compensation is provided by paying all members their PPF benefit entitlement.  Broadly speaking, this is based on the “admissible rules”, using the accrual rate, earnings definition and pensionable service definition in the scheme rules, and disregarding certain changes made in the last three years, to determine a member’s entitlement.

  • 100% of the entitlement of a member who reached normal pension age before the PPF assessment date is paid;
  • non pensioners receive 90% of their entitlement, but subject to an annual cap.

Once in payment, all pensions (whether to pensioners or non-pensioners) will increase in line with inflation, but subject to a maximum increase in any year of 2.5%.  However this rate of increase only applies to that part of a pension which was earned by service after 6 April 1997.

The entry process can be complicated where the scheme is multi-employer, with different requirements (depending on how the scheme rules are worded) for “last-man standing” schemes and schemes where a “partial winding-up” is required.  It also depends on identifying all the entities which still count as employers, as it may be necessary for all of them to have suffered an insolvency event in order for the whole scheme to be assessed for PPF entry.  While entry is often unintended due to the employer becoming insolvent, it can be part of a wider purpose to restructure the group or address its liabilities.  We are familiar with the situations where “PPF drop-in” may be intended, and the need to follow correct processes and engage with PPF, Regulator and other stakeholders as part of gaining approval for the drop-in.  See also Statutory Employers.

Following insolvency, an assessment process begins where checks are carried out to ensure the scheme qualifies for entry to the PPF.  During assessment legal advice is needed by the trustees to establish exactly what the “admissible rules” are, and that benefits have been appropriately adjusted to reflect equal treatment requirements.  It may also be necessary to establish correct benefit entitlements.

Why choose Pitmans’ Pension Protection Fund Entry lawyers?

Pitmans' Pension Protection Fund Entry lawyers can:

  • Advise on any aspect of the PPF.
  • Advise on entry rules.
  • Advise on admissible rules
  • Advise on equal treatment and benefit entitlements.