Pension Protection Fund Cap
20 July 2016
- Government must stop denying fairer pension compensation to long-serving staff of failed firms
- Regulations are ready and DWP should lay them immediately
- Further delay in increasing Pension Protection Fund cap is a major injustice to those affected
- Small numbers of people but to each one this is hugely important
No justification for further Government delays to Regulations for loyal, long-serving pensioners: It is very disappointing that the DWP has failed to lay the Regulations that will allow pensioners to receive higher payments from the Pension Protection Fund. A minority of workers in failed firms have lost more than half their pension payments and are waiting for increased compensation that had been delayed for years.
The Regulations are ready to be laid this week – further delays are simply unfair: Having pushed DWP officials to get the required Regulations ready to increase the PPF cap, they should be laid immediately. All the necessary work has been completed and we planned to announce the regulations this week. It is so disappointing that the DWP has failed to act, causing further unfair delays to those affected.
Compensation won’t be backdated so any delay adds to the injustice: Those workers entitled to fairer compensation from the PPF have already been waiting for years. It is true that the PPF offers good compensation to most people whose employer fails, however the PPF cap hits some pensioners’ payments significantly. In many cases they lose more than half their pension and this was recognised as unfair a few years ago. These higher pension payments will only begin from the date the regulations are actually laid, they will not be backdated. So each week of delay can mean the pensioners losing hundreds of pounds which they can never recover.
These are not ‘fat cats’ but long-serving managers: Those affected are not ‘fat cats’ with huge salaries and did not cause the company to collapse. They can be middle managers who have been with the company for decades and worked really hard for their employer.
Legislation introduced in 2014 has still not started: In 2014, Parliament passed legislation to increase the capped PPF payouts for long-serving staff who had been with their firm for more than 20 years. I had many letters from MPs on behalf of the individuals who have suffered devastating pension losses, and I promised to act as soon as possible.
Small numbers of people but to each one this is a huge issue: The Department says this is just ‘small numbers’ of people but that is no excuse for delaying measures that are ready and have been promised. To each one of these pensioners, the loss is significant.
Tata’s British Steel Pension Fund would benefit if PPF cap is increased: In the recent consultation on Tata Steel, one of the biggest issues highlighted has been the draconian reductions in pensions for longer serving steelworkers. Increasing the PPF cap could reassure many steelworkers that the PPF will pay more of their expected pensions.
Increase in Financial Assistance Scheme cap too: I had also received agreement to increase the Financial Assistance Scheme cap along similar lines to the long service PPF cap rules and hope that this can still proceed as well.
Don’t let political considerations hold things up: It is a real injustice to allow the political fallout from the new Government to take money away from those who have lost so much of their pension through no fault of their own.
The Regulations must be announced now, before Parliament rises for the Summer: I promised these members and their MPs that we would introduce the regulations as soon as possible. They are ready now, so they should be introduced immediately.
NOTES
PPF protects most members well, although not all: Over 200,000 members of final salary-type pension schemes are being looked after by the Pension Protection Fund (PPF). When their employer’s business has been unable to support their pension promises, the PPF insurance scheme takes over and pays them compensation, so they can receive much or all of the pension they were promised. Pensioners over age 65 receive compensation at the 100% level, while most members below that age receive 80-90% of their expected pension. However, some pensioners will lose far more – they could actually lose most of their pension under PPF rules because their payments are capped. Not only is the amount paid out capped, but the cap itself reduces if people took their pension before age 65.
PPF cap can result in members losing most of their pension: The significant pension losses resulting from the PPF cap were perceived to be unfair and potentially also in breach of EU legislation. The EU requires member states to protect workers’ pensions on insolvency. However, the PPF cap could result in long-serving staff losing most of their promised pension. For example, for someone who took their pension at age 60, whatever their pension would have been, the PPF will only pay just over £29,000. So if they were in line for a £60,000 a year pension, they will lose more than half their promised payments. Many people who had worked for their company for many years and who had managed to accrue higher pensions have ended up losing the majority of their payments. By contrast, other members receive closer to 90% of their promised pension.
Capped PPF rates for 2016:
Age at which pension starts | Maximum annual pension from PPF (=90% of cap) |
65 | £33,678 |
60 | £29,049 |
55 | £25,573 |
For someone who starts getting their pension at age 65, the cap is £37,420.42 for 2016, and the person would receive 90% of that level which is £33,678 a year. If they started receiving their pension at age 60, the cap falls to £32,376.75 a year and the 90% level they would be paid is £29,049 a year. At age 55, the cap falls to £28,414.42 and the 90% level they would be paid is £25,573 a year.
One thought on “Pension Protection Fund Cap”
You talk about the unfairness of the cap when you first receive your pension from the PPF but you do not mention the really unfair deal that pensioners who made their contributions before April 1997 do not receive any increases in the amount received each year. The government encouraged me to contribute to a defined benefit pension scheme and when the scheme went bust the PPF pays me the same each year with no increases. I am thousands of pounds worse off than if the scheme I had joined had been sound and inflation is making me poorer each year.