Victims of collapsed final salary company pension schemes left with little or nothing at retirement can claim compensation under the Pension Protection Fund (PPF).

This safety net was set up by the Government in April 2005 to aid tens of thousands of workers whose lives were blighted after some of Britain's biggest companies went bust, leaving a deficit in their pension schemes.

Despite years of contributions, members were left desperate, with little to show as schemes sank without sufficient money to honour the pensions they were due to pay.

The plight of these workers prompted the government to introduce the PPF.

So how does it work?

The PPF acts like an insurance policy for final-salary occupational pensions.

These pension schemes can resort to the PPF where the employer becomes insolvent and it does not have enough money to pay its members' pensions.

The fund is generous. Retired scheme members will receive 100% of their pension, while members still of working age should get at least 90% of the pension they were due to receive when they retired. But the payments are capped at £26,050 a year, which means some people will receive less than they would have been entitled to had the company survived.

Earlier this year, the PPF unveiled the five fund managers it has selected to manage its assets which are expected to grow to £5 billion by 2009. State Street, Lazard, Newton, Morley and Auriel were chosen from more than 80 applicants.

The PPF allocates 30% of its portfolio to equities, property and currency, with the remainder invested in lower risk cash and bonds.

But crucially, the fund will not act retrospectively. The 125,000 who lost pension rights before April 2005 are covered instead by the Government-funded financial assistance scheme (FAS). But this has been heavily criticised as, three years after it was set up, the FAS has paid out only £4 million, despite costing £10 million to run.

Who pays for this safety net?

The pension schemes themselves pay for the PPF. But the price of protection does not come cheap.

To cover the liabilities of these schemes, the PPF expects to collect around £675 million this year in fees from about 8,000 active company schemes.

The PPF levy is made of a flat-rate fee on each pension fund and a risk-based levy, which accounts for 80% of the total. Companies most at risk from collapse must pay the highest risk-based levy.

However, a concerted effort by many of Britain's larger employers to cut their own fund deficits has reduced their levy contributions. But critics fear that the PPF will not have enough money and will be overwhelmed if just one company with a huge pension deficit collapses.

Who has it helped?

It has so far offered to support more than 90,000 final salary pension scheme members who would have otherwise lost some or all, of their pension.

One high profile case is that of the 6,000 workers who lost their jobs when car maker MG Rover collapsed. They will have their pensions protected after they were transferred into the PPF.

The transfer of the Rover pension scheme which, according to the PPF's calculations, has liabilities of £589 million and assets of £415 million is the biggest so far into the fund which has transferred eight other schemes. The PPF recovered £24 million for the scheme from Rover asset sales.

Other collapsed firms include insurer Heath Lambert and car parts maker Turner & Newall, which were allowed to put their pension schemes into the fund to protect benefits often built up over decades.

Where can I find out more?

In June 2007 the Pension Protection Fund launched an easy-to-understand booklet - 'Help! My employer has gone bust ... and I think I might lose my pension' - which explains how PPF compensation works.

This leaflet will made available to final salary pension scheme members through a variety of routes including scheme trustees and through links with other relevant organisations, including Citizen's Advice. Copies of 'Help! My employer has gone bust ... and I think I might lose my pension' may also be downloaded from the PPF website at Protecting People's Pensions.

PPF Chief Executive, Partha Dasgupta, comments, "Our leaflet provides easy-to-understand explanations about how we work, what compensation people might receive in certain situations and how they can find out more about their own individual circumstances. We hope this will contribute to providing valuable reassurance to many pension scheme members."

The information in this article is intended only for information purposes and not as advice on your own situation because it may not be appropriate for you. If you are unsure whether something is suitable for you then you should seek advice from a relevant professional.

 

Privacy Policy | Site Map