The PPF provides compensation at two levels: 100% or 90%. Pension scheme members who are only entitled to receive 90% compensation are also subject to the compensation cap.
If a pension scheme is eligible for PPF entry, the level of benefit payable depends on the pension scheme member’s circumstances immediately before the assessment date (generally the date the scheme applies for PPF entry) and the pension scheme rules.
The members who are entitled to 100% compensation include pension scheme members over the pension scheme’s normal pension age.
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 PPF).
However, no pension increases are provided in respect of pensionable service prior to 6 April 1997 and compensation that is derived from pensionable service on or after that date is only increased each year in line with CPI capped at 2.5%. This could potentially result in a lower rate of increase than the scheme would have provided.
The members who are entitled to 90% of the “compensation cap” include:
Active and deferred members will only receive their pension on reaching the pension scheme’s normal pension age.
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 scheme rules by the PPF) plus revaluation, currently in line with the increase in CPI between the assessment date and the commencement of compensation payments. Revaluation is subject to a cap of 5% in respect of service from April 1997 to April 2009, and 2.5% in respect of service thereafter. These caps apply in deferment.
Once compensation is in payment, pension increases are applied in the same way as outlined under “100% compensation level” above. Again, this could result in a lower rate of increase than the scheme would have provided.
The PPF can alter its levy to meet its liabilities. However, in extreme circumstances compensation could be reduced:
The compensation is subject to an overall cap, which, as at April 2018, equates to £35,105.56 at age 65 after the 90% has been applied (the cap will be adjusted according to the age at which compensation comes into payment).