The Pensions Act 2004 provides for compensation to be paid by the Private Protection Fund (PPF) to members of a qualifying scheme, amounting to 90% for deferred members or those below the scheme’s normal retirement age at the PPF assessment date, or 100% of the pension payable under the scheme’s rules.

Those who have not attained normal pension age by the PPF assessment date are also subject to the PPF’s compensation cap of £39,006.18. In addition, under the 2004 Act, increases are only made on PPF compensation payable in respect of benefits attributable to pensionable service after 5 April 1997 and the level of increases is limited to the lower of 2.5% and CPI.

However, in the recent case of Hampshire v the Board of the Pension Protection Fund, the Court of Justice of the European Union (CJEU) ruled that the Pensions Protection Fund (PPF) must compensate each individual member at least 50% of the value of their accrued pension.

Members will now have an individual minimum guarantee of compensation from the PPF in the event of employer insolvency, rather than an average level of pension protection under legislation.

The PPF will need to review its compensation levels. Whilst the PPF has commented that the vast majority of PPF members already receive at least 50% in compensation and, therefore, the number of members affected is likely to be very small, there is still the question of how retrospective PPF compensation payments will be dealt with. The Government, in conjunction with the PPF, is carefully considering the implications of the judgment and will set out its full response in due course.

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