Pension Protection Fund: who it protects, what it pays and the new pre-1997 increases

If a company with a defined benefit pension goes bust, the Pension Protection Fund can take over the scheme and pay compensation. This guide explains who is covered, the 100% and 90% levels, annual increases and a 2026 law change on pre-1997 pensions.

What the Pension Protection Fund is and how it works

The Pension Protection Fund, usually called the PPF, is a public body linked to the Department for Work and Pensions. It exists for one situation: an employer with a defined benefit pension scheme becomes insolvent, and the scheme does not hold enough money to pay at least PPF levels of compensation. A defined benefit scheme, sometimes called final salary or career average, promises a pension worked out from your pay and years of service rather than from the size of an investment pot. When the PPF steps in, it takes over the scheme and pays its members compensation instead of the original pension.

The process is not instant. According to the PPF, when an employer becomes insolvent an assessment period begins. During it, the scheme data is checked so members receive the right benefits, and a valuation tests whether the scheme has enough assets to secure PPF levels of benefits. The PPF says this takes about two years on average, and a scheme can only transfer to it once the assessment is finished.

Who is covered and who is not

The PPF says it protects members of defined benefit schemes. It does not protect defined contribution schemes, also called money purchase schemes, where your pension depends on the value of your pot. Public sector schemes are also outside it, as are some other schemes the PPF lists, such as those that are not tax registered or have only death-in-service benefits. It also says some individual members may not be protected, for example some who left a scheme very early, with under two years of contributions after 6 April 1988. The Financial Assistance Scheme, or FAS, is run by the PPF for government and helps people whose schemes wound up between 1 January 1997 and 5 April 2005 and who lost part or all of their pension. The PPF says FAS no longer takes new members.

This guide is general information for people in the UK with a private sector defined benefit pension. The PPF is a UK-wide body, so the main rules are the same in England, Scotland, Wales and Northern Ireland. If you are not sure what kind of pension you have, your latest statement or your scheme administrator can say, and MoneyHelper can explain the types in plain terms.

How much it pays: the 100% and 90% levels

GOV.UK says the PPF usually pays 100% compensation if you have reached the scheme's pension age, and 90% if you are below it. The PPF's own pages add that the level depends on several factors, including whether you had passed your scheme's normal pension age when you retired. Because the rules have detail, the figures on your own statement from the PPF are the ones that count.

A worked example

The figures here are illustrative only. For example, suppose a scheme promised a member a pension of £10,000 a year, and the member was below the scheme's pension age when the employer became insolvent. At the 90% level, compensation would be £10,000 x 0.90 = £9,000 a year. If another member in the same scheme had already reached the scheme's pension age, their compensation would be 100% of the pension in payment, so a pension of £10,000 would stay at £10,000 a year. The difference between the two, £1,000 a year, is simply 10% of £10,000.

Annual increases, and the change for pre-1997 pensions

The PPF says compensation built up from service after 6 April 1997 rises each year in line with CPI inflation, the official measure of consumer price rises, capped at 2.5% a year. If CPI is negative, compensation is not reduced. Increases are applied each 1 January. The PPF lists recent rises of 2.5% in 2024, 2.0% in 2025 and 2.5% in 2026, with 2.5% shown for 2027. For example, if £4,000 a year of compensation relates to post-1997 service and the increase is 2.0%, the rise is £4,000 x 0.02 = £80, taking it to £4,080.

Compensation based on service before 6 April 1997 has historically not increased. The Pension Schemes Act 2026 changes that. The PPF says it allows increases of up to 2.5% a year on all or part of pre-1997 compensation where the original scheme required increases, whether by its own rules or by law. The PPF estimates around 256,000 PPF and FAS members could benefit, and says the change covers future payments only, not backdated ones. Members whose scheme required increases on all pre-1997 benefits are expected to see the first rise on 1 January 2027. Members whose scheme only gave increases on guaranteed minimum pensions earned after 1988 would get increases on a proportion of their pre-1997 benefits, with the first expected on 1 January 2028. The PPF says the exact proportion has not yet been confirmed by government. For example, if the pre-1997 part of someone's compensation is £2,000 a year and the increase is the full 2.5%, the rise would be £2,000 x 0.025 = £50, giving £2,050.

Common mistakes and what to check

• Assuming every pension is protected: only eligible defined benefit schemes are, and defined contribution pots and public sector schemes are not.
• Expecting the whole pension to rise: only the parts the law and the scheme rules allow, and from the dates above.
• Expecting a backdated payment: the PPF says the law applies to future payments only.
• Waiting to be contacted: the PPF has said it plans to write to eligible members and that members do not need to contact it.
• Relying on older articles: figures such as annual caps and increase rates have changed over time, so check the current PPF pages.

Free, impartial help is available from MoneyHelper, which can explain pensions and signpost to the right contact. A financial adviser is the route for personal advice, which this guide does not give.

Check before you act

Pension rules, increase rates and dates can change, and the pre-1997 details in particular were still being finalised when this guide was checked. Please confirm the current position on the official pages linked below before relying on anything here.

Sources

• Workplace pensions: protection for your pension (GOV.UK)
• Pension Protection Fund (GOV.UK)
• Pre-97 increases (Pension Protection Fund)
• Will my payments increase? (Pension Protection Fund)
• Who we protect (Pension Protection Fund)
• If your employer becomes insolvent (Pension Protection Fund)
• The Pension Schemes Act has become law (Pension Protection Fund)
• What being a FAS member means (Pension Protection Fund)