PPF: Basics
The PPF was established by the PA04 with effect from April 2005. It is run by the Board of the PPF and funded by the payment of levies each year by all pension schemes potentially eligible for entry (for further information, please see PPF: Levies).
The PPF’s main function is to provide compensation to members of eligible DB pension schemes where there are insufficient assets in the pension scheme to cover the PPF level of compensation.
The PPF will become involved with a pension scheme when there is a “qualifying insolvency event”. A “qualifying insolvency event” is an insolvency event that occurs, on or after 6 April 2005, to an individual, partnership or company. The insolvency events that are covered by this include a broad range of events, the most significant exception being a members’ voluntary liquidation. (This is because a members’ voluntary liquidation is a solvent form of liquidation and it is therefore not considered to be appropriate for compensation.)
After the occurrence of a qualifying insolvency event a PPF “assessment period” begins. During the assessment period the pension scheme will continue to be administered by the trustees of the scheme, subject to various restrictions. Whilst the scheme is in an “assessment period” it is assessed to see if it is eligible for entry into the PPF.
Entry to the PPF depends on the scheme being eligible (there are certain exceptions) and whether the scheme is able to secure benefits in excess of the PPF compensation levels. If the scheme is eligible and cannot secure benefits in excess of the PPF compensation levels the scheme will enter the PPF unless the scheme is rescued.
A scheme will be rescued if another employer can be found to step into the shoes of the employer that has suffered the qualifying insolvency event.
If a pension scheme is accepted into the PPF at the end of the assessment period the members will be entitled to benefits at the PPF compensation level (for further details of the PPF compensation level of benefits, see “What being a PPF member means”).
Commonly used abbreviations in pensions
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