The Government has today confirmed it will introduce the necessary legislation to increase the Pension Protection Fund compensation limit for long serving employees.
The limit will be increased from April 2017, with the PPF predecessor scheme the Financial Assistance Scheme being brought into line from 2018.
PPF compensation is currently capped at £33,678, however it can effectively penalise long serving employees by treating them the same as higher earners with shorter service. From next year, the compensation limit is expected to be increased by 3% a year for every additional year of service beyond 20 years, subject to an overall limit of twice the standard limit.
A consultation is being launched today by the under-secretary of state for pensions Richard Harrington.
Hargreaves Lansdown comment - Tom McPhail, Head of Retirement Policy:
“This will deliver more graduated benefits, making a distinction between long serving middle-earning employees and those fortunate higher earners who have hit the cap after only a few years’ service. It will inevitably have some knock-on effect on the funding of the PPF, however the scheme is in surplus and they should be able to adjust to accommodate this without any significant disruption. Looking ahead, questions remain about the stability and sustainability of final salary scheme funding and how that interacts with the Pension Protection Fund. We expect to see these issues explored as part of the DWP select committee enquiry.”
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