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Underfunded Schemes - Pension Protection Fund

Key Points

  • The Pension Protection Fund (PPF) provides compensation for members of defined benefit (DB) pension schemes whose sponsoring employers have become insolvent. It was established by the Pensions Act 2004.
  • To qualify for entry to the PPF a scheme must be an eligible scheme.  The Pension Protection Fund (Entry Rules) Regulations 2005 detail schemes that are not eligible.
  • PPF entry is more complex for multi-employer schemes.  The process will depend on the scheme's rules and whether or not the scheme is sectionalised or segregated (for example, on the insolvency of an employer).  Detail is provided in the Pension Protection Fund (Multi-Employer Scheme)(Modification) Regulations 2005.
  • The PPF is funded through levies on eligible DB schemes.
  • If a scheme enters the PPF, the PPF will provide compensation to the scheme's members in place of their accrued pension. This compensation is subject to a cap which (usually) increases slightly each year.

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