The Pension Protection Fund was set up in the UK as a result of the Pensions Act 2004.
To help fund the PPF, compulsory annual levies are charged on all eligible schemes.
The PPF is also responsible for the Fraud Compensation Fund which was set up to provide compensation to occupational pension schemes that suffer a loss that can be attributable to dishonesty.
Members of defined benefit pension schemes in the UK are protected by the Pension Protection Fund which will pay most of the benefits to members if the employer goes bust. On buyout, however, the protection regime switches from the PPF to the Financial Services Compensation Scheme.
Final salary members who are retired when their employer goes bust can generally expect to continue receiving 100 per cent of their pension from the PPF. Members who have not retired will have 90 per cent of their benefits protected up to a cap of about £31,000.
In contrast, the FSCS will pay 90 per cent of all benefits to all members, retired and not yet retired, with no cap.
Pension Protection Fund (PPF) in the news
In June 2013 it was reported that the Pension Protection Fund would take over the £543m pension liability of the UK Coal Operations, the rump of the once nationalised British Coal. The company is owned by the miners’ pension scheme and the deal meant that the PPF would become the owner of two deep and six open cast mines.
The pensions deal raised questions about likely losses that would be suffered by the PPF and raised the spectre of the need to increase the annual levy that the PPF charges to members.