The Pension Protection Fund compensation cap amendments

Document type
Impact Assessment
Corporate author(s)
Great Britain. Department for Work and Pensions
Publisher
DWP
Date of publication
25 March 2013
Subject(s)
Poverty Alleviation Welfare Benefits and Financial Inclusion, Older Adults
Collection
Social welfare
Material type
Reports

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The Pension Protection Fund (PPF) pays compensation to members of underfunded defined benefit occupational pension schemes where the employer has become insolvent. Anyone below the scheme pensionable age at the point of insolvency gets 90 per cent of their accrued pension, subject to a maximum cap. Long serving scheme members see their retirement income disproportionately affected by the compensation cap. 

The Department for Work and Pensions aims to re-structure the compensation cap so that individuals with long service in a scheme which enters the PPF receive a higher compensation cap. Anyone who has been a member of a scheme for 21 years or more will have the compensation cap applied to them, increased by 3% for each full year of membership over 20 years. There will be a maximum compensation cap of double the base cap. 

Two options are considered in detail in this impact assessment. Option 1: Have a compensation cap which goes up according to length of service and Option 2: do nothing. The preferred option - 1 - is the one which specifically targets the identified group, without drawing in anyone else. Assessed are the monetised and non-monetised costs and benefits of each option (including administrative burden), the impact on members already in the PPF or in the PPF assessment period, the impact on members who may enter the PPF in the future, risks, and wider impacts.