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Flashcards in Chapter 5 Key Issues Relating To Pension Transfers Deck (40)
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Calculating the available LTA?

Refer page 278.

“Example 5.2
John is a member of a defined benefits arrangement. He decides to take his benefits in 2018/19 when the LTA is £1.03m. John has already used up 90% of his LTA and has no transitional protection in place. He is entitled to a scheme pension of £8,500 per annum and a lump sum of £42,500.

Before paying out, the scheme administrator calculates the value of these benefits to test against the LTA.

(£8,500 × 20) + £42,500 = £212,500
This amounts to 20.63% of the current LTA.
As John has already used 90% of his LTA, he only has 10% (£1.03 million at 10% = £103,000) of his LTA available to set against these benefits, therefore he will be subject to a LTA charge on the excess (£212,500 – £103,000 = £109,500).”


Benefit Crystallisation Events:

“5A2 Benefit crystallisation events (BCEs)
A BCE arises in the following circumstances:

Benefit crystallisation event (BCE)

Valuation basis

See Note

BCE 1: Drawdown pension
The designation of money purchase assets to provide for the payment of a drawdown pension.
The market value of the fund.


BCE 2: Entitlement to a scheme pension
The member becoming entitled to a scheme pension.
Scheme pension × 20.


BCE 3: Excessive increase to scheme pension in payment
The increase of a scheme pension already in payment beyond a permitted margin.
The additional increase × 20.


BCE 4: Purchase of a lifetime annuity
The member becoming entitled to a lifetime annuity purchased under a money purchase arrangement.
The market value of the fund used to purchase the lifetime annuity.

BCE 5: Defined benefit test at age 75
The member reaching age 75 under a defined benefit arrangement without having drawn all or part of their entitlement to a scheme pension and/or lump sum.
Scheme pension × 20 plus the amount of the lump sum.

BCE 5A: Test at age 75 for drawdown pension
The member reaching age 75 with an earlier designated drawdown pension fund which has not been secured by a lifetime Annuity or scheme pension.
“Market value of the member’s capped drawdown pension at age 75 less the market value of that designated for drawdown pension at the outset.”

“BCE 5B: Test at age 75 for uncrystallised money purchase funds
The member reaching age 75 under a money purchase arrangement in which there are remaining uncrystallised funds.
The amount of any remaining uncrystallised funds.

BCE 5C: Unused uncrystallised funds designated for drawdown following the member’s death
The member dies before age 75 and uncrystallised funds remaining at death are designated (before the end of the two-year relevant period following the member’s death) to a dependant’s or nominee’s flexi-access drawdown pension.
The market value of the assets designated as available for drawdown.

4, 5

BCE 5D: Unused uncrystallised funds used to purchase a lifetime annuity following the member’s death
The member dies before age 75 and uncrystallised funds remaining at death are used (before the end of the two-year relevant period following the member’s death) to purchase a dependant’s or nominee’s lifetime annuity.
The market value of the assets used to purchase the lifetime annuity.”

“BCE 6: Relevant lump sums
The member becoming entitled to a relevant lump sum, e.g. on retirement.
The amount of the lump sum.


BCE 7: Relevant lump sum death benefits
A relevant lump sum death benefit being paid in respect of the member, either from a defined benefit scheme or from uncrystallised funds of a money purchase arrangement.
The amount of the lump-sum death benefit.

BCE 8: Transfers overseas
A transfer to a qualifying recognised overseas pension scheme (QROPS).
The amount of the transfer value.

BCE 9: Prescribed event
Where certain payments are made to or in respect of a member that constitutes an event that is prescribed in the regulations.
The amount prescribed in the regulations.”

“Similarly, under the BCEs that take place at age 75 (BCE 5, BCE 5A and BCE 5B), no lump sum is physically paid out to the member, because benefits have not yet actually been taken, so any LTA charge is at the rate of 25%.”


When Benefits started before A-Day:

“If benefits were already in payment before A-Day, a different approach is used to determine the amount of unused LTA available.

A standard 25:1 valuation factor is used for pre-A-Day income benefits. A deemed BCE means that although the pre-A-Day payment will use up part or all of the member’s LTA, leaving less or no LTA for the actual BCE occurring to be tested against, it will nonetheless not result in a LTA excess charge being levied against itself.

Where the pre-A-Day income was in the form of a lifetime annuity or scheme pension the calculation is very straightforward. For example, if an annuity was purchased, £10,000 of annuity income is valued at £250,000. The factor is applied to the annual payment in force when the first BCE on or after A-Day occurs. Where the pre-A-Day payment escalates each year in payment, as with a defined benefit scheme, for example, then the valuation factor is applied to the amount payable at the date of the first BCE after A-Day when it is brought into charge, and not to the original payment. “If when valued the pre-A-Day payment exceeds the available LTA at the time of the BCE then there will be no LTA excess charge on the pre-A-Day payment (as it is a deemed BCE), but will have the knock-on impact for the actual BCE that is occurring at that time, leaving no LTA to test against. This means that the entire BCE will then be subject to a LTA excess charge and no PCLS will be available as no LTA remains.”


More on valuation of benefits started before A-Day:

“The reason the calculation is now 80% of 25 × maximum GAD income is because the maximum income from a capped drawdown contract was increased from 120% of the basis amount to 150% of the basis amount on 27 March 2014.

When you multiply 150% by 80% you arrive back at 120%. Where the member had a flexible drawdown plan prior to 27 March 2014 the 80% does not appear in the calculation, because at the time the declaration was made the maximum income from a capped drawdown pension was still 120% of the basis amount. Effectively in all cases the calculation results in a figure of 120% of the basis amount (multiplied by 25).

The 25:1 factor (and the 80% where appropriate) is applied to the maximum permitted withdrawal as calculated at the most recent review. The actual level of income being drawn (which could be nil), PCLS received and fund value are all ignored.

The important point to note here is that the valuation of the benefits that started before A-Day only takes place on the first BCE that happens after A-Day. “This establishes the percentage of the LTA that was used up by the benefits that started before A-Day. This percentage is then used for all future BCEs – it does not have to be recalculated even if the value of the pre-A-Day income has subsequently increased (e.g. because of an increase in the GAD rate or escalation in annuity income).”


Pension credits on Divorce?

Refer to pages 291 -293.


Maximum Permitted pension:

“maximum permitted pension (MPP).

The MPP is the amount of pension that could have been paid to the member (assuming they were in good health) on 5 April 2006 without giving HMRC grounds for withdrawing the approval of the scheme. It takes account of the member’s service to 5 April 2006, the appropriate definition of ‘final remuneration‘ at that date, the occupational tax regime they belonged to and, in certain circumstances, retained benefits. This restriction was introduced to ensure benefits that were excessive under the regime applicable to the individual before A-Day are not afforded protection under the new regime.

If an excess amount was identified, the way in which it was treated depended upon the type of protection chosen. If an individual opted for primary protection, only the amount up to the value of the MPP could be made subject to primary protection. The excess capital value could have been carried over into a registered scheme and thus still be available to provide pension benefits. This excess capital value would normally be subject to a LTA charge although this will depend on both the rate of investment return achieved and the rate of increase in the standard LTA from A-Day until the member crystallises their benefits.”

“Where the individual wished to opt for enhanced protection, the excess must first have been surrendered before such a choice could be made. The rules of the scheme must have been followed to see what options are available regarding the disposal of any surplus. Options may include:

a refund to the employer less tax at 35%;
augmentation of other scheme members’ benefits; or
the excess being used to pay future scheme premiums for any remaining members.
It is important to note that the concept of an MPP is only relevant in respect of transitional protection. For individuals who have not sought transitional protection there is no such restriction.”



Primary Protection:

“5A4B Primary protection
This was available to individuals with pension rights, valued on 5 April 2006, that had a capital value that exceeded £1.5m”


Value of pension benefits on 6 April 2006 - £1.5m/ £1.5m


Enhanced Protection:

“5A4C Enhanced protection
This form of protection was available to anyone regardless of the capital value of their pension benefits at A-Day. Provided the member remains eligible for enhanced protection, all benefits coming into payment after A-Day will be exempt from the LTA charge.

Enhanced protection will continue to apply provided that the member does not accrue any further pension benefits under a registered scheme on or after 6 April 2006. This is known as relevant benefit accrual.”


Definitions of Relevant Benefit Accrual for Enhanced Protection:

“Type of scheme


Money purchase arrangements

Finance Act 2004, sch. 36, paras. 13(a) and 14

When a relevant contribution is made after 5 April 2006:

A relievable pension contribution paid by the individual or any third party.
A contribution to the arrangement in respect of the individual paid by their employer.
A contribution paid otherwise than:
by the individual (or on their behalf); or
by their employer in respect of the individual (which is subsequently allocated to the individual’s arrangement).
Hybrid schemes

Finance Act 2004, sch. 36, para. 13(a)

The nature of a hybrid scheme means that relevant benefit accrual could be tested by either the test for money purchase schemes or defined benefit depending on what has been promised. This will not be known until benefits are actually provided.

Contributions can continue to a hybrid scheme after 5 April 2006 without immediate loss of enhanced protection. However, where the benefits to be provided are money purchase then enhanced protection will be lost.

DB and cash balance schemes

Finance Act 2004, sch. 36, paras. 13(b), 15(1) to (4).

Payments from a cash balance arrangement or defined benefits arrangement that are either:

a benefit crystallisation event; or
a permitted transfer to a money purchase arrangement.
Either of the above would trigger a test for relevant benefit accrual and if this has occurred enhanced protection will be lost. Relevant benefit accrual is deemed to have occurred where benefits paid from a cash balance and/or DB scheme are more than the ‘appropriate limit’ (see following text for further details).”

“The amount of earnings to be used in the calculation of the pension rights is the lesser of:

pensionable earnings immediately before the date of first taking benefits under the arrangement or the date of the ‘permitted transfer’, using the definition of such earnings as applied under the arrangement on 5 April 2006; and
the ‘post-commencement earnings limit’ as defined in the Finance Act 2004, sch. 36, paras. 15 and 16.
If the individual has benefits in a number of related arrangements the calculation is made when the first benefit crystallisation event or permitted transfer to another money purchase arrangement occurs in any of the arrangements.”


Fixed Protection:

“Fixed protection will continue to apply provided that the member does not accrue any further pension benefits under a registered scheme on or after 6 April 2012/2014/2016 – whichever applies. This is known as benefit accrual.”

“For example, for FP 2016 to be valid there can be no benefit accrual after 5 April 2016. It is lost on the day benefit accrual occurs, which includes:

any pension contributions paid to a defined contributions scheme; and
pension growth in a defined benefit scheme that exceeds a relevant percentage.”

“Any transfer of benefits to other schemes must be a permitted transfer in order for fixed protection to be retained.”


Individual Protection:

“Individuals will have an individual LTA equal to the capital value of their benefits at 5 April 2016 but subject to a maximum cap of £1.25m.”

“IP 2016 allows individuals to accrue further benefits in defined benefit schemes (and continue to make contributions to defined contribution schemes), without the risk of losing this protection.

Individual protection will remain dormant while the member holds the following:

Enhanced protection.
FP 2012.
FP 2014.
FP 2016.”

“Eligibility and application process
Individuals can apply to HMRC for IP 2016 as long as they do not have primary protection (active or dormant) and the capital value of their pension benefits, from all their registered pensions schemes is equal to or in excess of £1m as at 5 April 2016.
Applications are made online and individuals need to have an account set up with HMRC online services. In addition, the application will require the full value of pensions as 5 April 2016 and a breakdown of the amount as follows:”


Interactiion between the different protections;

“Anyone with pension benefits in excess of £1m may elect for both FP 2016 and IP 2016 and should do so, provided there has been no benefit accrual on or after 6 April 2016. FP 2016 will be lost if any future contributions or benefit accrual takes place. However, if the individual holds IP 2016 in addition to FP 2016 the individual protection will remain in place.”

“This means that the individual electing for both protections will have an LTA of:

£1.25m if no contributions or benefit accrual takes place after 5 April 2016; or
their protected LTA (between £1m and £1.25m) if contributions or benefit accrual does take place after 5 April 2016.
There are no disadvantages in opting for both because, if when benefits are drawn the total value is below the protected LTA, it may be possible to make further contributions (or benefit accrual) to top the benefits up to that level.”

“Example 5.12
Ken has a personal pension scheme that was valued at £1.2m on 5 April 2016. He elected for FP 2016 and stopped making contributions into the scheme. He also decided to opt for IP 2016, so was given a protected LTA of £1.2m.
After two years Ken decides to crystallise his fund, but unfortunately the value has dropped to £1.12m.

As long as Ken has sufficient relevant UK earnings (in addition to his unused annual allowance) he can make a contribution of £80,000 into his personal pension (using carry forward) to bring the value up to £1.2m. Without also making a claim for IP 2016 he would only be able to take the existing £1.12m as no further contributions can be made under FP 2016.”


Incentive Exercises:

“An incentive exercise (IE) is an invitation or inducement, generally referred to as an offer, provided to a member of a scheme, which upon acceptance would change the form of their accrued benefits in the scheme. This could be in the form of transferring their benefits out of the scheme, or a modification exercise such as full commutation and pension increase exchange (PIE).

An IE broadly meets both of the following criteria:

One objective of providing the offer is to reduce risk or cost for the pension scheme and/or sponsoring employer.
The offer or inducement is not ordinarily available to members of the scheme.”


Incentive Exercises: The Trustees Role

“Trustees should start from the presumption that IEs are not in most members’ interests. Therefore, they should approach an IE cautiously, making sure they understand the extent of their legal obligations (including under legislation, trust law and their scheme’s governing documentation)”

“Trustees should also:

actively engage with the proposal from the start to so that members are properly informed and treated fairly;
ensure that have sound internal controls to ensure that can provide the additional services required, including increased levels of information requests from third parties involved in the advice process;
manage conflicts of interest in line with TPR requirements;
be aware of and meet their data protection responsibilities; and
consider the funding impact – there are potential implications for the strength of the employer’s covenant to the scheme (and its ability to fund the scheme) where its capital is used for an ETV exercise.”


Incentive Exercises: The Regulators Role

“The regulator will investigate reports of cases where behaviours give cause for concern. Examples of issues that would raise concerns are:
selective offers to certain scheme members which are seeking to give advantage to one section of membership over another;
any attempt to exploit the protection of the Pension Protection Fund (PPF);
funding exercises in a way that could have an adverse effect on the employer’s ability to fund the scheme deficit (and any future deficit) in accordance with the existing recovery plan; and
coercing or placing undue pressure on members to transfer or give up their benefits.”

“Where significant concerns exist in this area, the regulator has powers to intervene (such as the removal of trustees or the appointment of an independent trustee).”


Enhanced Transfer Values

“There are a number of reasons why a higher transfer value may be offered, however one of the most common reasons is where the employer and/or the trustees wish to de-risk their scheme by offering deferred and/or active members a cash incentive to transfer their benefits from the scheme. This is generally known as enhanced transfer value (ETV).”

“The employer covenant means that this liability is shown on the company accounts, and is also a drain on company resources with usually large ongoing contributions required to maintain the funding level of the scheme at acceptable levels. These problems are compounded where the scheme is underfunded, and it is a possibility that the pension debt could effectively make the company insolvent. There are only a couple of options available to an employer wanting to deal with this problem: offer an ETV, or go into buyout. However, the second option is prohibitively expensive for most companies, leaving an ETV exercise as the more likely route.”


Pension Increase Exchange?

“Many defined benefit schemes now offer a pension increase exchange (PIE) where the member can give up future guaranteed increases to their pension in return for a higher initial pension with no future increases. Note that a PIE can only be applied to non-statutory increases; i.e. the option of a PIE cannot be offered if the scheme benefits escalate in payment in line with the statutory requirements we have just outlined.

It is popular with defined benefit schemes because:

pensions that escalate in payment are expensive to provide and increasing longevity means the cost is rising;
the cost of the increases is an unknown liability for the scheme as future life expectancy and inflation are unknown, so offering a pension increase exchange means future liabilities may reduce and there is less longevity risk and inflation risk for the employer; and
the employer does not suffer a large one-off ‘cost’ in offering the pension increase exchange.”


Pension Increase Exchange, Benefits and Drawbacks



A member may prefer a higher initial income to enjoy whilst they are active and healthy in the early years of their retirement.

A member who lives longer than the average may, over the longer term, end up worse off than if they had selected an escalating pension. This is very difficult to assess, but if the member is in good health with a family history of longevity an escalating pension may be preferred.

The member may also be entitled to a higher pension commencement lump sum (PCLS) if the scheme calculates the entitlement as the maximum permitted under HMRC rules.

PCLS examined further inPension commencement lump sum (PCLS)

The value of the member’s benefits for the purposes of testing against the lifetime allowance (LTA) will be higher (since the scheme pension is valued using a factor of 20:1).

In 2018/19 an annual pension of £50,000 would be valued at £1m. Therefore, LTA issues are an additional consideration if a pension increase exchange would push the value of an entitlement above the member’s remaining LTA.

“A member in poor health or with a less than average life expectancy may end up better off with a higher initial pension that does not escalate beyond the statutory requirements, as they may not live long enough to see the full benefits of an escalating pension.

Where the PIE is offered at retirement, the calculation of the pension input for the final year may result in a pension input that exceeds the annual allowance. This is because the closing value of the member’s accrued benefits will be based on the higher initial pension that is now being offered.”

“The higher initial pension may affect the member’s entitlement to any means-tested State benefits”


Scheme Funding Status;

“Solvency is measured on two bases, the technical provisions or the cost of ongoing liabilities, and the cost of buying out all the benefits in full.”


Scheme Funding Status; Technical Provisions:

“All schemes that provide defined benefits have a statutory obligation to have a funding objective that aims for the scheme to have sufficient and appropriate assets to cover its technical provisions. These measure the extent of the scheme’s liabilities in relation to past service as they fall due.”

“The trustees are responsible for choosing the assumptions to be used. These should be prudent and consistent with the overall requirements of the technical provisions.
Assumptions should be evidence-based, taking into account current conditions and expected future trends.
They should be scheme-specific and take into account the occupational and demographic groups of that scheme, such as mortality and early leaver rates.
Discount rates used in setting technical provisions must be prudent and take into account the yield on assets held in the scheme to fund future benefits, and the anticipated growth on those investments, or the market redemption yields on government or high quality bonds.”

“Trustees should aim for a funding outcome that reflects a reasonable balance between the need to pay promised benefits and minimising any adverse impact on the employer’s sustainable growth. This can be achieved by using the flexibility in the rules when setting discount rates for technical provisions, but in all cases these should be prudent and consistent with the scheme”

“Mortality assumptions
Trustees should pay particular attention to assumptions about future mortality bearing in mind that:
wide variability is observed between individuals;
there is variability year-on-year in the whole population;
long-term trends can be observed in age-specific mortality of cohorts; and
historically, experts have usually underestimated the rate at which mortality will reduce (longevity increase).”

“Statement of funding principles
The trustees are required to provide a written statement stating their policy for securing the statutory funding objectives are met. This should record any decisions by the trustees in relation to:
the methods and assumptions to be used in calculating the scheme’s technical provisions; and
details of any recovery plan in place where the statutory funding level has not been met.
This document needs to be maintained and reviewed on a regular basis as set out in the legislation.”


Scheme Funding Status; Reduced Transfer Values

“In certain circumstances, trustees are permitted to offer transfer values which are less than the initial cash equivalent (ICE) calculated under the best estimate method. One of the permitted reductions is to allow for the funding situation of the scheme. However, trustees may only reduce ICEs for this reason after obtaining an assessment by the actuary of the funding of the scheme using the transfer value assumptions, and known as an insufficiency report. Reductions to ICEs to take into account scheme funding must not exceed the maximum reduction identified in the insufficiency report.”

“The degree of underfunding: the worse the funding position, the more necessary it may be to reduce ICEs to protect remaining members.
Their assessment of the strength of the employer’s covenant: the stronger the covenant, the less the trustees may feel it necessary to reduce transfers.
The structure of any recovery plan in place: the sooner a funding deficiency is being addressed, the less necessary reductions may be.
Any contingent assets in place and their form: if contingent security is available to plug a funding gap in the event of an employer’s insolvency, reductions in transfer values may be unnecessary.
Has the employer undertaken to make a compensatory payment to the scheme each time a transfer is paid at an unreduced level?”


Pension Protection Fund?

“The Pension Protection Fund (PPF), which came into effect from 6 April 2005, is an insurance scheme designed to protect members of private sector defined benefit and hybrid schemes. It is run by the PPF Board, which is independent of The Pensions Regulator and is funded by an administration levy, a fraud compensation levy and a pension protection levy. The pension protection levy has scheme-based and risk-based components.”


Entering the PPF:

“If the PPF is to take responsibility for a scheme a number of requirements must be met, in particular:

the scheme must not be a money purchase scheme;
it must not have commenced wind-up before 6 April 2005;
a ‘qualifying insolvency event’ must have occurred in relation to the scheme’s employer, e.g. an insolvency practitioner has notified the Board that the employer sponsoring the scheme is in administration;
there must be no chance that the scheme can be rescued; and
there must be insufficient assets in the scheme to secure benefits on wind-up that are at least equal to the compensation that the PPF would pay if it assumed responsibility for the scheme.”


Entering the PPF; Prescribed Insolvency Event

“The insolvency event starts an assessment period, during which the scheme is considered to see if it meets the criteria for entry into the PPF. The PPF aims to complete this within two years. During the assessment period, the trustees remain in day-to-day control of the scheme, however:
no new members can be admitted, no further benefits can be earned and no transfer values can be paid;
benefits can be paid under the scheme but only to the level of PPF compensation;
the PPF can intervene in the management of the scheme and give directions to the trustees;
the PPF will review any ‘moral hazard’ issues;
the PPF will also review any recent (typically within the three years prior to the assessment date) rule changes, ill-health early retirements and discretionary increases granted which may lead to an increase in PPF compensation; and
the PPF will instruct the scheme actuary to carry out an actuarial valuation as at the day before the assessment period started (a Section 143 valuation).”


PPF; Moral Hazard

“Examples of a moral hazard issue are where the employer agrees that a senior member of the board can retire due to ill-health on a generous pension shortly before the company goes into liquidation, or where discretionary increases to pensions in payment are made to some members shortly before the company goes into liquidation.
In these instances the PPF may view these actions as an attempt by the employer to benefit certain members over others and regard the benefits these members received to be excessive, placing too much strain on the resources of the PPF to continue paying them at that level.”


PPF; Transfers Out:

“In most cases, once a scheme is in the assessment period the trustees are not in a position to pay out any transfer values. There may be an exception to this where the member:
requested and accepted the transfer value in writing before the assessment date (and also within the timescale set by the trustees in order that the CETV quoted is still valid); and
has designated a scheme willing to accept that transfer value (i.e. have completed all paperwork required by the scheme the funds are to be transferred to and have submitted these).

In these cases the trustees may only pay the transfer value if they:

are satisfied that they can still meet their objective of ensuring that protected liabilities do not exceed assets (or that where they do, the excess is kept to a minimum); and
reduce the transfer payment to ensure that it does not exceed the cost of securing the benefits that would be payable if the PPF were to assume responsibility.”

“Once the PPF has assumed responsibility for the scheme, a member is not entitled to a transfer payment, unless their pensionable service was ended by the start of the assessment period and they had less than three months’ pensionable service in the scheme.

Insufficient assets
An S143 valuation is carried out to determine whether there are insufficient assets within the scheme. This valuation is based on the theoretical cost of buying out the scheme’s benefits with an insurance company and the provision of the PPF compensation entitlement to each member.”


PPF Compensation levels:

“Type of member/condition

Benefits provided

Members who have already reached the scheme’s normal retirement age when the employer suffers an insolvency event


Members already in receipt of a survivor’s benefit at the point the employer suffers an insolvency event


Members who have retired but have yet to reach the scheme’s normal retirement age when the employer suffers an insolvency event

90%: subject to an overall cap of £39,006.18 (2018/19) at age 65 (i.e. a maximum compensation payment of £35,105.56 p.a.). The cap is reduced in line with member’s age at the time of payment if they are under age 65. Members who defer receiving their compensation until after age 65, will have the cap increased.

Deferred members who have not reached the scheme’s normal retirement age when the employer suffers an insolvency event

As above.

Note: deferred members can choose to take their compensation later than the scheme’s normal retirement age and if they do so, their compensation is actuarially adjusted to reflect the period of postponement.

Survivors’ benefits for a spouse/civil partner/relevant partner coming into payment after the employer suffers an insolvency event (but see below)

50% of the member’s PPF entitlement[…]”

“Survivors’ benefits for qualifying children (where a spouse’s pension is also paid) coming into payment after the employer suffers an insolvency event

One qualifying child will receive 25% of the member’s PPF entitlement, increasing to a maximum of 50% if there is more than one qualifying child.

Survivors’ benefits for qualifying children (where there is no spouse’s pension paid) coming into payment after the employer suffers an insolvency event

One qualifying child will receive 50% of the member’s PPF entitlement, increasing to a maximum of 100% if there is more than one qualifying child.

Members already in receipt of a pension on the grounds of ill-health when the employer suffers an insolvency event

Up to 100%, but reviewed on a case-by-case basis.”


More on PPF Compensation levels:

“Payment of spouse/civil partner/relevant partner benefits
Although the PPF includes a provision for a 50% spouse/civil partner/relevant partner pension, whether one is paid is determined by the rules of the original scheme.”

“Payment of survivor’s benefits to qualifying children
A qualifying child is one who is a natural child (either born or unborn at the date of the member’s death), adopted child or a child of the family who was financially dependent upon the member at the time of their death. They must be either under 18 or over 18 and under 23 and:
in qualifying education, i.e. attending a full-time educational or vocational course at a recognised educational establishment; or
have a qualifying disability, i.e. be incapable of engaging in full-time paid employment due to a condition defined as a disability under the Disability Discrimination Act 1995.”

“Application of the compensation cap
The Pensions Act 2014, schedule 20, included provisions to increase the cap for those with pensionable service over 20 years by 3% for every additional full year. From 6 April 2017, the ‘long service cap’ came into effect for members who have 21 or more years’ service in their scheme. For these members the cap is increased by 3% for each full year of pensionable service above 20 years, up to a maximum of double the standard cap.”


Yet more on PPF Compensation levels:

“Deferred members of schemes within the PPF have their benefits revalued thus:

Benefits for service accrued prior to 6 April 2009

Increased each year in line with the CPI subject to a maximum of 5%

Benefits for service accrued after 5 April 2009

Increased each year in line with the CPI subject to a maximum of 2.5%

Once members start to receive their compensation their payments are increased thus:

Benefits accrued for service prior to 6 April 1997

No increases

Benefits accrued for service after 5 April 1997

Increased in line with CPI to a maximum of 2.5%”


PPF Total Commutation of Benefits:

“The pension flexibilities do not apply to the PPF. A PPF trivial commutation lump sum can, however, be paid in respect of PPF compensation once the scheme has”

“been transferred and where the member:

has a minimum age of 55;
is under age 75; and
has £30,000 maximum overall benefits.
A twelve month ‘window’ applies (from the first trivial commutation payment) during which any schemes being commuted must be completed.”