On 25 June 2012, in a ministerial statement from pensions minister Steve Webb, it was confirmed that the PPF compensation cap will be increased to reflect the length of a member’s pensionable service.

The PPF compensation cap does not currently differentiate between members on account of their length of service. The change that has been announced will directly benefit those members who have been in service with an employer for a considerable time before the scheme enters the PPF.

The cap will be increased by 3% for every full year of service above 20 years. This will still be subject to a maximum amount which will be fixed at double the standard compensation cap.

While the increase will be legislated for “as soon as Parliamentary time allows”, the statement is clear in stating that the revised cap will not be backdated. Therefore anyone for whom this increase may apply, but who is already in receipt of a capped pension, will receive an increase from the date the legislation is in place. The new increased compensation cap for long service will therefore apply in respect of a member of any scheme if it begins to wind up or enters the PPF assessment period after the increased compensation cap is introduced.

The current PPF compensation cap for 2013/14 is £34,867.04, and is revised annually. For members of schemes entering the PPF who are below their scheme’s normal pension age the 90% compensation cap of £31,380.34 applies at age 65.

Trustees and Employers should note that this increase in the compensation cap may cause an increase in scheme liabilities for section 179 valuations, and a corresponding increase in future PPF levies to account for the higher level of PPF compensation which may potentially be due where schemes have members with pensionable service in excess of 20 years.