Pillar Guide · Updated July 2026

Pension Protection Fund (PPF): A Complete UK Guide for 2026/27

If your employer sponsors a defined benefit (final salary) pension and becomes insolvent, the Pension Protection Fund can step in to protect your benefits. This guide explains how the PPF works, what compensation levels apply, and what happens during an assessment period.

Last updated: 3 July 2026Last reviewed: 3 July 2026How we verify

What the PPF Is

The Pension Protection Fund is a statutory safety net, established under the Pensions Act 2004 and operational since April 2005, that pays compensation to members of eligible UK defined benefit pension schemes when the sponsoring employer becomes insolvent and there is not enough money in the scheme to buy members' benefits in full with an insurer. Without the PPF, members of an underfunded scheme whose employer collapses could lose a large part of the pension they had built up over their career.

Which Schemes Are Eligible

Most private-sector occupational defined benefit and hybrid pension schemes in the UK are eligible for PPF protection. Schemes that are generally not eligible include:

Unfunded public-sector schemes (such as the NHS, teachers' and civil service pension schemes), which are backed directly by government rather than a separate fund
Schemes with a statutory guarantee from a public-sector body
Schemes that were already winding up before the PPF started on 6 April 2005
Money purchase (defined contribution) pension pots, since these are held individually rather than pooled against the employer's solvency

The Assessment Period

When a sponsoring employer becomes insolvent, an eligible defined benefit scheme normally enters a PPF assessment period. During this time, the scheme continues to pay benefits, generally at PPF compensation levels, while the trustees and the PPF determine whether the scheme's assets are enough to buy out members' benefits with an insurance company at a level at least equal to PPF compensation. If the scheme can afford this, it usually proceeds to an independent buy-out rather than transferring into the PPF. If it cannot, the scheme formally transfers into the PPF and the PPF takes over paying compensation going forward.

Compensation Levels

PPF compensation depends on your circumstances when the assessment period begins:

100% compensation generally applies if you were already past the scheme's normal pension age, already drawing your pension, or retiring due to ill health at that date.
A reduced level generally applies for members below normal pension age who had not yet started drawing their pension, reflecting long-standing Pensions Act 2004 rules as later amended following legal challenges to the original compensation cap.

Because the exact percentages, any compensation cap, and long-service uplifts can change following legislation or court rulings, always check the current position on the PPF's own website or with the scheme administrators rather than relying on a fixed figure.

Annual Increases

PPF compensation relating to pensionable service on or after 6 April 1997 is generally increased each year, in line with inflation up to a cap, similar to the statutory revaluation and indexation rules that applied to the underlying scheme. Compensation relating to service before 6 April 1997 is typically not automatically increased once in payment, mirroring how many defined benefit schemes historically treated pre-1997 pension rights.

How the PPF Is Funded

The PPF does not rely on general taxation. It is funded mainly through an annual levy charged to all eligible defined benefit schemes (weighted by scheme risk and the sponsoring employer's insolvency risk), together with investment returns on its own assets and recoveries made from the insolvent employers of schemes it has taken on. This levy-based model means the PPF is designed to be self-sustaining across the wider system of eligible schemes.

What to Do if Your Scheme Is Affected

If you hear that your employer or former employer has become insolvent and you have a defined benefit pension with them, the scheme trustees are required to write to members to explain what is happening and what it means for their benefits. Keep your contact details up to date with the scheme administrator, read any assessment period correspondence carefully, and contact the PPF directly if you have questions about your specific entitlement once a formal assessment period is confirmed.

Official References

FAQs

What is the Pension Protection Fund?

The Pension Protection Fund (PPF) is a statutory fund that pays compensation to members of eligible UK defined benefit (final salary) pension schemes when the sponsoring employer becomes insolvent and the scheme cannot afford to buy members' benefits in full.

How is the PPF funded?

The PPF is funded mainly by a levy charged to eligible defined benefit schemes each year, plus investment returns on its own assets and recoveries from insolvent employers. It receives no direct annual funding from general taxation.

Do defined contribution pensions get PPF protection?

No. The PPF only protects eligible defined benefit and some hybrid scheme benefits. Defined contribution (money purchase) pots are held in the member's own name in ring-fenced individual accounts, so there is no employer-insolvency risk in the same way, and the PPF does not step in for them.

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What happens during a PPF assessment period?

When a sponsoring employer becomes insolvent, the scheme normally enters a PPF assessment period. The PPF and the scheme trustees check whether the scheme has enough assets to buy benefits at least equal to PPF compensation levels. If it does not, the scheme transfers into the PPF; if it does, it usually proceeds to buy out benefits with an insurer instead.

How much compensation will I get?

It depends on your position when the assessment period starts. Those already past the scheme's normal pension age, already receiving a pension, or retiring due to ill health generally receive 100% of their promised benefit. Others below normal pension age typically receive a reduced level, subject to a compensation structure set out in the Pensions Act 2004 as amended by later legislation and case law.

Are PPF payments increased each year?

Compensation built up from pre-1997 service is generally not automatically increased, while compensation relating to post-1997 service is increased each year, subject to a cap, broadly in line with inflation. The exact indexation rules depend on when the underlying pension rights were earned.

Is my employer's scheme protected by the PPF?

Most private-sector defined benefit and hybrid schemes are eligible, but some are not — for example unfunded public sector schemes, schemes already winding up before the PPF started in April 2005, and certain schemes with a guarantee from a solvent public body. Your scheme's annual benefit statement or trustees can confirm eligibility.

Can I get an accurate figure for my own PPF compensation?

The PPF and scheme administrators calculate individual compensation once a scheme actually enters the PPF, based on scheme rules, service history and age. This guide explains the general framework; for a case-specific figure you should contact the scheme trustees, administrators, or the PPF directly once a formal assessment period has begun.

What happens to any tax-free lump sum if my scheme transfers into the PPF?

If you have not yet retired when the PPF takes over, you can normally still take part of your compensation as a tax-free lump sum when you draw it, broadly mirroring how a pension commencement lump sum works, though the amount is based on PPF compensation rules rather than your original scheme rules. If you had already taken your lump sum before the assessment period began, this does not change.

Will my spouse or dependants get anything if I die after the PPF has taken over my pension?

Yes. The PPF generally pays ongoing compensation to an eligible spouse, civil partner, or dependant after a member's death, calculated as a percentage of the compensation the member was entitled to. The exact percentage and eligibility rules depend on the relationship and, in some cases, on scheme rules that applied before the PPF took over.

Can I transfer my benefits out of the PPF to another pension arrangement?

Once a scheme has formally transferred into the PPF, members generally cannot transfer their PPF compensation to another pension scheme in the way they could with an ordinary defined benefit pension. Any transfer decisions need to be made before the scheme enters the PPF, typically during the assessment period, and should involve regulated financial advice.

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About the author

Emma Clarke

UK Tax Writer

Emma Clarke has been writing about UK personal tax since 2018, with a particular focus on Self Assessment, PAYE coding and the practical mechanics of how HMRC actually applies the rules to ordinary salaries. Her work concentrates on translating the dense language of HMRC manuals and Finance Act schedules into worked examples that show, pound by pound, how income tax and National Insurance reduce a gross salary to the figure that lands in a UK bank account. Emma covers the full PAYE lifecycle: tax codes (1257L, BR, K codes, emergency codes), the Marriage Allowance, the High Income Child Benefit Charge, salary sacrifice arrangements and their effect on pensionable pay, the Apprenticeship Levy, and the differences between the rUK and Scottish income-tax regimes. She is particularly interested in the edge cases that catch PAYE employees out — the £100,000 personal-allowance taper, the 60% effective marginal rate it creates, and the interaction between student-loan plans and pension contributions. Every figure in Emma's articles is verified against the current HMRC rates pages and worked through a Self Assessment calculation by hand before publication. She writes to CalcHub's editorial standards: primary-source citations, plain English, no promotional language, and clear "this is general information, not financial advice" disclaimers where appropriate.

Personal-finance writer since 2018
UK tax specialism — PAYE, Self Assessment, National Insurance
Writes to CalcHub editorial standards (primary-source citation, annual review)

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Disclaimer: PPF compensation levels and rules can change following legislation or court rulings; check the current position at ppf.co.uk. This guide is general information, not financial, legal or tax advice. Always seek independent professional advice for your specific situation.