The Pension Protection Fund (PPF) offers compensation to people with a defined benefit pension scheme in case the employer doesn’t have enough funds. If an employer can no longer pay your pension and becomes insolvent, the PPF will provide compensation instead.
The UK government set up the PPF in 2005 to protect the rights of millions of people. This guide will discuss PPF and defined benefit schemes in detail. If you want to consult with a chartered tax advisor in Walsall, visit IBISS & CO.
Employer Becoming Insolvent
The defined benefit scheme is also referred to as career average pensions and final salary. If your employer who promised to offer this scheme becomes insolvent, the government steps in with the PPF.
There is an assessment period before someone qualifies for this pension scheme compensation. It takes around two years for this assessment to be completed, and then it will be decided if the PPF is accepted or not.
An employer’s assets within their pension scheme will be assessed during the assessment period. It will also be assessed if the assets offer insurance for a company buyout and then complete pension benefits to the employees.
If the assets aren’t enough, the employees will be admitted to this scheme and continue to get relevant compensation, the same as their pension income level. No further benefits or members can be added to the PPF once the assessment period begins. Members aren’t allowed to transfer their benefits. If they wish to do so, they must do it before this period.
How Much Does the PPF Cover?
The amount covered by the PPF will depend on your age. If you pass the normal pension scheme age and your employer becomes insolvent, you will receive full compensation. If you were in ill health and started drawing money from your pension scheme earlier, you will still receive full compensation from the PPF.
People receiving survivor’s pension, including children, widows, widowers, and civil partners, will also qualify to receive the full pension income. If you don’t pass the normal pension age, you will receive 90% of the pension that has been accumulated until your employer becomes insolvent. There is no maximum limit for this amount.
The compensation paid under the PPF can change depending on new legislation, and the old laws won’t count. The payment under this fund will increase in line with inflation, but there is a limit of 2.5%.
Visit IBISS & CO. and learn all about how our chartered accountants and tax advisors can help you out. Our professionals can guide you about your pension scheme income and how it will affect your taxes. We have the best tax accountants and inheritance tax specialists in London who can help you out.
Reach out to us today for more information.
