All schemes go through an Assessment Period before entering the Pension Protection Fund. We aim to complete assessment for most schemes within two years. Here is a guide to the key stages of this process:
1. Section 120 Notice Received
We must be notified when an insolvency event occurs (such as the appointment of administrators) at a company that sponsors a pension scheme. The insolvency practitioner looking after the affairs of the company will notify us by sending a Section 120 Notice.
2. Section 120 Notice Validated
We will now work with the scheme’s trustees to obtain the necessary information to determine if the scheme is eligible to pass into the PPF or not. Once we have this information, we have 28 days to make a decision. If the scheme is eligible, we will validate the Section 120 Notice and the scheme will be deemed to have started the Assessment Period. The start date of the Assessment Period is the date of the insolvency event.
During assessment, we want to ensure that all the data held for the scheme is accurate. This will ensure that members receive the right compensation payments.
During this lengthy process, trustees are responsible for informing their members about all aspects of the assessment process and the progress it is making.
Trustees also remain responsible for paying pensions throughout the assessment period. Pensions must be paid at Pension Protection Fund levels of compensation. Generally, this means that those members at or above the scheme’s normal pension age at the date the assessment period begins or who are in receipt of an ill-health pension, or are in receipt of a survivor’s pension, will receive 100% of their pension. Those under normal pension age at that date will receive 90% of their pension entitlement, subject to a compensation cap. Any questions relating to your personal circumstances and pension scheme entitlements during the assessment period should be directed to your scheme trustees.
The final stage of this section is the production of a section 143 valuation by an actuary. This is a confirmation of whether the scheme can pay member benefits at or above PPF levels. If not, the scheme will transfer to the PPF. Details relevant to the production of the section 143 valuation are given on our Valuation Guidance page.
Transition involves reviewing and transferring the scheme’s assets and member data, and reviewing and terminating any contracts (ie with lawyers or advisors) that are in place as part of the scheme.
We start the transition stage during the previous assessment process itself to minimise the time it takes to complete the overall assessment period. This stage takes about six months from the point at which the PPF requests the section 143 valuation and ensures that the scheme is prepared to pass from the trustees, into PPF ownership.
5. PPF Scheme
Once all of the activities have been completed, and if the scheme has demonstrated it has insufficient assets, the PPF will take over responsibility for the scheme. This should have very little impact on members in receipt of pension as benefits will already have been paid at compensation levels during the assessment period.
All members of the scheme will be notified of the relevant contact details for the Pension Protection Fund.
A scheme need not necessarily complete all parts of this process. For example, we will withdraw from the pension scheme and end the assessment period if:
• the employer has been rescued as a going concern, or
• the business has been sold and another body takes on responsibility for the pension scheme liabilities.
See also our scheme member booket, 'What is the Pension Protection Fund and What Do We Do?'