The Pension Protection Fund (PPF) had a £678m surplus in 2010-11, more than double the £248m recorded in the previous year. Funded by an industry levy, it aims to be self-sufficient by 2030.
What is the Pension Protection Fund?
The Pension Protection Fund (PPF) was established in 2005, continuing the work of the Financial Assistance Scheme (FAS). It pays compensation to members of defined benefit (DB) and hybrid pension schemes where the employer is insolvent and there are insufficient funds in the scheme. Funded by an industry levy, the PPF currently supports 335 schemes, providing protection for over 450,000 people.
When a scheme is saved by the ‘pensions lifeboat’, existing pensioners receive their pension income in full and those who have not yet started to draw their pension will be entitled to 90% of their entitlement, up to a ceiling of £29,897 (2011-12).
The PPF took on 133 pension schemes during 2010-11. This number continues to rise, with recent scheme transfers including Allders Department Stores and Findus Foods. Despite the steady call for PPF support, the fund reported an increased surplus and announced that it would require a smaller levy for 2011-12, reducing its funding target by £120m.
Chief Executive Alan Rubenstein said: ‘While these figures are a snapshot of what happened in 2010/11, they should also be seen in the context of our objective for the PPF to be financially self-sufficient by 2030, something we remain firmly on course to achieve. They should also give people who receive our compensation and financial assistance continued confidence in our ability to provide that compensation and assistance for as long as they need them.’
Commenting on the year’s figures, Darren Philp, Director of Policy at the National Association of Pension Funds (NAPF), said: ‘This is welcome news at a time when pensions are facing serious challenges, and it should instill some much-needed confidence among savers. People saving into final salary pensions in the private sector can feel reassured that their pensions are protected.’
Closed schemes and funding shortfalls
Final salary schemes have been under a lot of pressure in recent years, with many closing to new members and an increasing number closing to current members too. Not all closed schemes require PPF support, as many have sufficient funds invested to meet the pension needs of their members.
Although defined contribution (DC) schemes are increasingly common, defined benefit (DB) schemes continue to support many in the public sector, with 5.3m active members of public sector DB schemes reported by the Office for National Statistics in 2010. In the private sector, the total for 2010 was 2.1m, of which 1m were in open schemes and 1.1m in closed schemes.
Which? pensions expert Ian Robinson said: ‘The PPF figures show how far we have come from the dark days of the ‘Maxwell Affair’ in the early 1990s, when it emerged that Mirror group employees had been robbed of their pension by an unscrupulous proprietor. Today’s DB pension scheme members can be confident of receiving their pension promise.’