Pension Compensation Fund Cap Illegal

A ruling by the Court of Justice of the European Union (CJEU) that members of failed company pension schemes should not receive less than 50% compensation of the pension scheme benefits that they would have received is putting added pressure on the UK’s Pension Protection Fund (PPF).

The PPF is the compensation fund for company pension schemes paid for by levy by all registered company pension schemes.  This is different to the Financial Services Compensation Scheme (FSCS) which covers insurance, mortgages, investments and private pension schemes.

Currently, the PPF limit is 90% compensation up to a cap on the total amount that can be paid, currently £39,000 pa pension at the age of 65 and in April 2019, this increases to £40,020.

What does this mean?  If you are a member of a company pension scheme and entitled to say a pension of £100,000 pa and the scheme then fails, the maximum compensation pension you should receive is capped at £39,000pa.  This means high earners have lost out.

Under the CJEU ruling, if you were entitled to a £100,000 pa, you should be receiving £50,000 pa pension compensation and not £39,000 pa.

The PPF is currently reviewing its arrears payment facilities and is under financial pressure to do as more legal cases are brought against them.

The increased pension compensation payments will also likely mean an increase in levies across remaining company pension schemes.