Compensation Limits for Pension Provider, Employer or Adviser Failure

Four Pension Scheme Compensation Categories

Firstly, you need to understand that there are four categories for pensions when schemes, employers or advisers have failed and are either protected by the Financial Services Compensation Scheme (FSCS) or the Pension Protection Fund (PPF).  The FSCS is paid for by levy on regulated financial services firms (providers and financial advisers) and the PPF is paid for by pension scheme levy on Employer Defined Benefit Pension Schemes. 

• Defined Contribution Pension Provider failure – protected by the FSCS.
• Defined Contribution Self Invested Pension Plan (SIPP) Operator failure – protected by the FSCS.
• Pension Adviser failure – protected by the FSCS.
• Registered Occupational Defined Benefit Pension Schemes (employer failure) – protected by the PPF.

Defined Contribution Schemes (Investment linked): Pension Provider, Sipp Operator and/or Pension Advice,

If the firm failed between 1 January 2010 and 2 July 2015

• Pension Provider Failed - 90% of your claim, with no upper limit. 
• SIPP Operator Failed - up to £50,000 per eligible person, per firm. 
• Bad Pension Advice (if Adviser Failed) - If you’ve received bad advice in relation to your pension, you could be eligible to claim compensation up to £50,000 per eligible person, per firm. 

If the firm failed between 3 July 2015 and 31 March 2019

• Pension Provider Failed  - 100% of your claim, with no upper limit. 
• SIPP Operator Failed  - up to £50,000 per eligible person, per firm. 
• Bad Pension Advice (if Adviser Failed) - up to £50,000 per eligible person, per firm. 

If the firm failed after 1 April 2019 

• Pension Provider Failed  - normally 100% of your claim, with no upper limit.
• SIPP Operator Failed  - up to £85,000 per eligible person, per firm.
• Bad Pension Advice (if Adviser Failed) - up to £85,000, per eligible person, per firm. 

Registered Occupational Defined Benefit Pension Schemes

FSCS does not protect Defined Benefit Occupational Pension Schemes (OPS) if they fail.  These may be protected by the Pension Protection Fund (PPF).  https://www.ppf.co.uk/

The PPF is not a pension scheme it is a compensation scheme.  The PPF does not pay the pension promised by the pension scheme, it pays compensation.

The PPF does not Protect You if:

• Left the scheme before 6 April 1975.
• Were under the age of 26 prior to 1 January 1986.
• Left the scheme before 6 April 1988 and contributed for less than 5 years.
• Left the scheme after 6 April 1988 and contributed for less than 2 years.

PPF Protection - Reached Scheme Normal Retirement Age?

• Members who have reached their scheme’s normal pension age will generally receive the same amount in compensation as the pension they were receiving from their scheme at the time their employer became insolvent.
• We’ll also generally pay 100 per cent compensation to those who have retired on ill-health grounds, regardless of age, and those receiving a pension in relation to someone who’d passed away at the time that the employer became insolvent.
• PPF benefit payments will generally rise in line with inflation each year, subject to a maximum of 2.5 per cent.  This will only relate to pensionable service after 5 April 1997.  Payments relating to pensionable service before that date won’t increase.

Not Reached Scheme Normal Retirement Age?

• Members who haven’t reached the scheme’s normal pension age at the assessment date will receive up to 90 per cent compensation on reaching the normal pension age of their scheme.
• Members who have retired but not reached their normal pension age at the assessment date will also receive up to 90 per cent compensation.
• Annual increases in PPF benefits may be different to the increases that members would have received from their pension schemes.
• Members are able to take their compensation at a reduced rate before their normal pension age, or to postpone their compensation beyond their normal pension age.
• Members are usually able to give up some of their pension for a lump sum when they retire.

Check Protection Now

• What does the FSCS cover?  https://www.fscs.org.uk/what-we-cover/
• FSCS and ‘Pensions’ https://www.fscs.org.uk/what-we-cover/pensions/
• PPF and ‘Employer Sponsored’ Defined Benefit Pensions https://www.ppf.co.uk/

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