How PPF Compensation Works
The Pension Protection Fund (PPF) was established in 2005 to provide compensation to members of eligible DB pension schemes when the sponsoring employer becomes insolvent and the scheme has insufficient assets to pay full benefits. The PPF does not pay identical benefits to those promised by your scheme — there are different levels depending on your circumstances.
100% Compensation
You receive 100% of your pension (without a cap) if you fall into one of these categories at the date the employer became insolvent:
- You had already reached your scheme's normal pension age and were drawing your pension
- You are receiving a survivor's pension (as a spouse, civil partner, or eligible dependant)
- You were receiving an ill-health early retirement pension
90% Compensation (Capped)
If you had not yet reached your scheme's normal pension age, you receive approximately 90% of your accrued pension, subject to a compensation cap. This applies to:
- Active members still working for the employer
- Deferred members who left before the employer failed
- Anyone below their scheme's normal pension age
The Compensation Cap
The PPF compensation cap for 2025/26 is set at £44,681 per year at age 65. The cap is adjusted depending on the age at which you start receiving compensation:
| Age at Compensation Start | Approximate Annual Cap (2025/26) |
|---|---|
| 55 | £27,850 |
| 60 | £35,520 |
| 65 | £44,681 |
| 70 | £57,590 |
Inflation Protection Under PPF
PPF compensation is partially index-linked, but the protection differs depending on when benefits were earned:
- Benefits earned after 5 April 1997 — increased annually in line with CPI, capped at 2.5%
- Benefits earned before 6 April 1997 — no annual increase, which means these benefits lose value in real terms over time
The Assessment Period
When an employer becomes insolvent, the pension scheme enters a PPF assessment period. During this time (typically 12–24 months), the PPF evaluates whether the scheme should transfer to the PPF or can be rescued. Members receive interim payments at PPF levels during the assessment.
Alternatives to PPF Entry
Not all schemes with insolvent employers enter the PPF. If the scheme has enough assets to buy annuities for all members at or above PPF compensation levels, it may wind up independently. Some schemes are rescued through employer restructuring or by another company taking on the pension obligations.
Implications for Transfer Decisions
Understanding PPF compensation levels is relevant if you are considering whether to transfer your DB pension. If your pension exceeds the PPF cap and your employer is at risk of insolvency, a transfer could protect benefits above the cap level. However, this must be weighed against the security of guaranteed PPF income below the cap.
Next Steps
If your employer is in financial difficulty or your scheme is poorly funded, check the PPF website for the latest compensation cap figures and estimate what you would receive. For pensions above the cap, or for complex situations, seek advice from an FCA-regulated pension adviser who can model the PPF scenario against transfer options.