The Pension Protection Fund

The Pension Protection Fund (PPF)Opens in a new window protects millions of people throughout the UK with a defined benefit pension scheme – also known as final salary and career average pensions.

If the company you work (or worked for) goes out of business, the PPF will:

1. Check how much money your pension scheme has.
2. Decide who is best to continue running it, either: 
   • another provider or insurer – if there’s enough money to pay them to take over, or 
   • the PPF themselves (via compensation payments).

Both options mean you would normally get all or most of what your pension was paying or had promised to pay. 

The PPF was set up by the government in April 2005, but it’s funded by payments from certain defined benefit pension schemes. 

If an employer with a defined benefit pension scheme fails, the Pension Protection Fund (PPF) won’t take over straight away. Instead, an ‘assessment period’ will begin, which typically lasts between 18 months and two years. 

During this period, the trustees of your existing scheme will deal with any queries and make any pension payments. But you can’t make any more contributions or transfer out of the scheme. The scheme is also closed to new members.

At the end of the assessment period, your scheme will either be transferred to: 

• a new provider

• an insurer, or

• the Pension Protection Fund.

This decision is generally based on how much money is left in the scheme. Whoever takes over must pay at least 90% of your promised pension. This is the minimum PPF compensation amount.  

If your pension is transferred to the Pension Protection Fund (PPF), they’ll pay you compensation payments. You’ll get a percentage of your promised pension depending on your situation:  

• 100% if you:
  
  • are already at or over your normal pension age
    
  • retired early due to ill-health, or
    
  • already receive a ‘survivor’s pension’ – where someone died and their pension is paid to you  
    
• 90% if you haven’t retired yet.
  

This is based on the amount you had built up when your employer went out of business. 

When your compensation payments start, you can normally choose to take up to 25% as a tax-free lump sum. 

For more information about being a PPF member, see their full list of Frequently Asked QuestionsOpens in a new window

Your compensation payments increase in line with inflation, up to a maximum of 2.5%. This applies to benefits built up since 6 April 1997 – anything before this date won’t increase.

If you lost all or part of a defined benefit pension that ended between 1 January 1997 and 5 April 2005, you’re protected by the Financial Assistance Scheme (FAS) – which is run by the Pension Protection Fund. 

The FAS also pays compensation, so you should get at least 90% of your expected pension. In some cases, a maximum cap might apply. This is currently £45,455 a year and usually increases on 1 April.

See more information on the Financial Assistance SchemeOpens in a new window