PPF myth busting: Pension Protection Fund summarises what it is, how it is funded and the benefits it provides

Written on 6 May 2016

Following recent press coverage in relation to Tata Steel UK and BHS, the PPF has this month published a short document dealing with common misconceptions over what the PPF is, how it is funded and the benefits that it provides to its members.

We have summarised the main points below. A full copy of the PPF document can be read here.

In summary:

  • The PPF is not funded by taxpayers. The cost of running the PPF and the compensation it pays is funded from the PPF levies paid by occupational pension schemes eligible to enter the PPF.
  • The PPF is not state-backed. The PPF is a public corporation set up under legislation. It is run by an independent board which answers to Parliament.
  • The PPF does not take on a scheme as soon as an employer goes bust. Following an employer’s insolvency the scheme enters an assessment period. During this time the trustees of the scheme remain in control of the day-to-day management of the scheme, but the PPF exercises the scheme’s creditor rights in the employer’s insolvency.
  • In certain circumstances the PPF may take part in restructuring or rescuing an insolvent business. The PPF’s principles for taking part in a restructuring or rescue can be read here.
  • The PPF does not have regulatory powers. The PPF is a compensation fund and will discuss any restructuring or rescue opportunities alongside the Pensions Regulator.
  • PPF compensation may be less than members expected if their scheme enters the PPF, but these levels are set by law. Broadly, if members are retired at the date their employer entered insolvency they get 100% of what was in payment. If a member is an early retiree or has not yet retired at that date, they get 90% of what they were promised, subject to a PPF compensation cap. Additionally, annual increases paid during members’ retirements are likely to be less than they expected.
  • The vast majority of members are not affected by the PPF compensation cap. Only 0.5% of the PPF’s current members are affected by the PPF compensation cap. This year the compensation cap is approximately £37,000 at age 65.
  • The PPF is well-equipped to meet the challenges of potential claims on the PPF. The PPF has been protecting members’ futures for over 10 years. Since the PPF was established 799 schemes have transferred to it and it is now responsible for more than 220,000 members. In its last published accounts the PPF had £3.6 billion in reserves with over £23 billion of assets under management.

About Open Trustees

In September 2013 the PPF launched a Trustee Advisory Panel, which now consists of five independent trustee firms it considers to have the appropriate specialist experience and skills to deal with the issues arising during a PPF assessment period. All panel members are also on the Regulator’s list of approved trustees.

Open Trustees Limited (a sister company to Osborne Clarke) has been a member of the PPF’s Trustee Advisory Panel since its establishment and has extensive practical experience of taking schemes through PPF assessment quickly and cost effectively.

If you would like any further information on Open Trustees or would like to consider them for an appointment please contact Jonathan Hazlett, a partner of Osborne Clarke and Managing Director of Open Trustees, whose contact details are below.