Pensioners to benefit from reforms to long service cap
Hundreds of members of the Pension Protection Fund (PPF) are set to benefit from changes to the compensation cap.
Anyone who was a member of a scheme for more than 20 years and has their compensation capped will see an increase by 3% for each year above 20 years of scheme membership.
Some people could now see their income increase significantly. Someone subject to the current cap of £37,420 could receive an additional £1,010 for every year they have been a member of their pension scheme over and above 20 years. Their maximum entitlement would be over £67,000.
The Department for Work and Pensions (DWP) is now consulting on the changes which are due to come into effect by April 2017.
Pensions Minister, Richard Harrington said:
These changes will provide a welcome income boost for many long-time scheme members.
The PPF is an important safety net for millions of people whose pension schemes are underfunded due to employer insolvency. By making this small change to the compensation cap, we’re getting more money into the pockets of hundreds of pensioners and ensuring they have a bit more security in their retirement.
The PPF provides compensation based on 90% of a person’s accrued pension if they are below the scheme’s pension age, when it becomes insolvent.
The department has also announced its intention to implement an equivalent cap for the Financial Assistance Scheme (FAS) from April 2018.
The PPF and FAS long service caps will not be backdated. Anyone already receiving compensation through the PPF will get an increase from the date the relevant legislation is in place.
The FAS provides financial support for those who lost significant amounts of pension because their defined benefit occupational pension scheme collapsed underfunded before the introduction of the PPF in April 2005. It ensures a person gets at least 90% of the pension due at the point the scheme collapsed, subject to a cap.
Read the consultation on the long service cap – The draft Pension Protection Fund (Modification) (Amendment) Regulations 2017
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