The PPF provides protection for members of defined benefit pension schemes if their employer becomes insolvent and if the pension scheme has insufficient assets to provide a minimum level of benefits.
(PPF Benefits)Prior to its introduction in 2005, many members of occupational pension schemes suffered large reductions in their pension benefits if their employer became insolvent with insufficient money in the pension scheme. The PPF has undoubtedly added security for members and provided individuals with a level of protection previously absent.
At present the PPF is paying compensation to around 30,000 members from over 100 schemes. In addition there are around 200,000 members in over 300 schemes currently in the “assessment period” i.e. their employer has become insolvent but they are waiting for full entry into the PPF.
Some compensation for members ineligible for the PPF is now provided through the Government's
Financial Assistance Scheme (FAS). The FAS is financed by taxpayers whilst the PPF is financed by levies on nearly all private sector defined benefit pension schemes, together with any recoveries it can make from insolvent employers.
The levy is like an insurance premium – any employer who has a defined benefit pension scheme (even if it is now closed) must contribute towards the finances of the PPF. The levies are payable from scheme assets but ultimately the employers will pick up the cost.