 Compensation
Information on how decisions are taken regarding which pension schemes are eligible for the Pension Protection Fund can be found at ‘who is eligible'.
Broadly speaking the Pension Protection Fund will provide two levels of compensation which are outlined below. Examples are given in our leaflet Protecting People's Pensions
- 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 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 the Retail Prices Index capped at 2.5%. This could, potentially, result in a lower rate of increase than the scheme would have provided.
- For the majority of people below their scheme’s normal pension age the Pension Protection Fund will pay 90% level of compensation.
In broad terms and in normal circumstances, this means 90% of the pension an individual had accrued immediately before the assessment date (subject to a review of the rules of the scheme by the Pension Protection Fund) plus revaluation in line with the increase in the Retail Prices Index between the assessment date and the commencement of compensation payments (subject to a maximum increase for the whole period calculated by assuming RPI rose by 5% each year). This compensation is subject to an overall cap, which, as at April 2008, equates to £27,770.72 at age 65 (the cap will be adjusted according to the age at which compensation comes into payment. Please refer to the current compensation cap factors).
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 the Retail Prices Index 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.
The Pension Protection Fund has the ability to alter the levy to meet its liabilities. However, in extreme circumstances compensation could be reduced.
- Revaluation and indexation could be reduced by the Pension Protection Fund if circumstances required it.
- Levels of compensation could be reduced by the Secretary of State on the recommendation of the Pension Protection Fund.
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