The Pensions Minister has announced that the maximum amount of money that can be paid from the Pension Protection Fund to an individual will increase where a member has significant pensionable service in a scheme. Length of service is not currently taken into account when determining the maximum amount of PPF compensation a member can receive and this can have a disproportionate impact on those members who have significant service in a single scheme.

The current annual cap on PPF compensation is £34,867.04 (revised each year). Members below their scheme’s normal pension age when it enters the PPF are eligible to receive a maximum of 90% of this cap (currently £31,380.34).

The Government proposes that the cap will be increased by 3% for every year of service that a member has in excess of 20 years. The Minister gave the following example of how this would work:

“...a person who has been a member of a pension scheme for 40 years and had accrued a pension of £50,000 would, if they took their compensation on reaching age 65 today, be paid a capped amount of £31,380. Following [the] proposed change, this person would see their compensation increase to £45,000”.

There will still be a cap on the maximum PPF compensation payable to such members, but it will be double the current cap.

There is no firm time scale for introducing this change and it will not be backdated. The Minister said he intended to make the relevant changes to legislation “as soon as Parliamentary time allows”. Once the change is made it may further limit the chances of any successful claim that the UK has not properly implemented the terms of the Insolvency Directive (which requires Member States to “ensure that the necessary measures” are taken to protect entitlements to pension on an employer’s insolvency).

The full statement can be viewed here.