The Pension Protection Fund (PPF) is a statutory financial group that was founded under the Pensions Act 2004, which included the reformation of the statutory financial regulator. This dual-motion was designed to improve the running of pension funds and provide increased protection to pension-holders in the event of financial mis-selling or investment collapse. The PPF was established to provide pension compensation for occupational pension holders with defined benefit schemes, in situations where there was a qualifying insolvency issue. However, the level of pension compensation is subject to a cap that could be lower than a policy holder’s prior pension entitlement.
There are varying circumstances that could affect the value of pension compensation paid annually by the PPF, but the upper compensation limit is roughly set at £35,000. However, this policy has come under fire from the European Court of Justice (ECJ) who recently heard that the pension compensation cap may be unlawful.
A case brought before the ECJ by a member of an occupational defined benefit pension scheme that entered PPF assessment after going into insolvency has highlighted perceived unfairness towards higher-earning employees. The preliminary case hearing heard that:
“In the case under its consideration, the Advocate General concluded the individual is entitled to compensation of at least 50 per cent of the total value of his accrued rights”.
Qualifying defined benefit pension scheme holders who have already retired can receive 100% of their original pension value up to this upper limit. Individuals who are yet to retire, or who retired early, generally receive 90% of their pension up to the cap limit. This setup is suitable for thousands of pension holders, but senior and long-serving employees who had accrued higher pension values could lose out because of this pension compensation cap.
However, even if the ECJ rules that the pension cap is unlawful, it is not expected to drastically affect many pension holders or indeed the PPF itself. Analysts predict that the fund will merely increase its levy and raise the pension cap so that all beneficiaries will receive a minimum of 50% pension compensation.
Other Pension Compensation Limits
Pension compensation limits are almost universally standardised policies for financial compensation funds and organisations throughout the UK. While the PPF exclusively provides pension compensation for select defined benefit pension schemes – which are something of a rarity in the current financial climate – most pension compensation claims are handled by the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS).
The FOS can handle financial disputes between regulated firms and clients, where there are concerns about trouble or upset. This could include service mis-selling or cases where firms have caused incidents of distress and inconvenience. The FOS has established an upper compensation limit of £150,000.
The FSCS is similar to the PPF in that it is set up as a lifeboat for pension holders whose schemes have collapsed or gone into default. There is an upper limit of £50,000 put in place by the FSCS for pension compensation.
Pension Compensation from Money and Me Claims
Money and Me Claims are experts in the field of financial claims, with a fully-rounded understanding of compensation expectations and capacities. We are equipped to handle pension compensation claims of any value and operate on a no win – no fee* basis to ensure that you are not put any further out of pocket unless absolutely necessary.
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