What does the Pension Protection Fund (PPF) pay if your employer goes bust?

Full answer

**What is the PPF?** The Pension Protection Fund (PPF) is a statutory fund that takes over responsibility for defined benefit (DB) pension schemes when an employer becomes insolvent and cannot fund the scheme. It provides compensation to members, protecting them from losing their pension entirely. **The two compensation levels** **1. Members who had already retired** at the time of insolvency: - Receive **100%** of their pension entitlement - Subject to the PPF compensation cap (see below) **2. Members who had not yet retired** at the time of insolvency: - Receive **90%** of their accrued pension - Subject to the compensation cap - Increases (where applicable) are typically based on CPI inflation **The PPF compensation cap** The compensation cap limits the total annual pension the PPF pays, regardless of the original pension amount. The cap is adjusted each year: - 2025/26 cap (at age 65): approximately £45,500/year (standard cap; 90% members effectively get 90% of this cap level) - Check PPF website for the current cap — it is indexed annually **Example: James, 60, pre-retirement when scheme enters PPF assessment** James has accrued a DB pension of £30,000/year. His employer goes insolvent. - James receives 90% = £27,000/year (below the cap) - Future increases: CPI-capped (not RPI which his original scheme promised) **Example: Sarah, 67, already retired when scheme enters PPF** Sarah was drawing a £50,000/year pension. - Above the cap: she receives the capped amount (100% level, capped) - Increases: CPI-based going forward **How the PPF is funded** The PPF receives annual levies from all DB pension schemes (a scheme-based levy and a risk-based levy). It also takes over the assets of the failed pension scheme.

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