What's a Pension Protection Fund?

The Pension Protection Fund: What You MUST Know

If you’re an employee in the UK, then there’s a good chance that your pension is managed by one of three major providers – Legal & General, Aviva or Prudential. These firms are all members of the Pension Protection Fund (PPF), which was set up to guarantee pensions when companies go bust. But what is the PPF? What does it do? & how does it work? Read on for more information about this vital institution & its role in protecting workers’ pensions.
What's Pension Protection Fund?

How Does the Pension Protection Fund work?

The PPF was set up to protect the pensions of UK workers if their employer becomes insolvent. The idea is that when a company goes bust, there’s still money in a fund that can be used to pay out pension benefit entitlements or provide for future ones – so you won’t lose your hard-earned income just because the firm has gone bankrupt.

To protect against this risk, all employers with defined benefit schemes must contribute 12% of their salary bill each year into the fund. They have until April 15 every year (i.e., before tax) to put it in place as an Annual Employer Contribution Provision (AECP1).

Fun fact:

Every year the PPF receives about £70 million in contributions, but with a deficit of more than £30 billion and an unknown number of assets to invest, it is not clear how long this can keep going. The UK’s largest pension fund (at HSBC) has now been transferred into government ownership as part of a rescue by Chancellor George Osborne to prevent a potential £20 billion black hole in the economy.

For things not to get worse, and with limited assets/investments available, the PPF has now had to put up its stake by borrowing money from one of the world’s most significant hedge funds (Och-Ziff).

How Do You Qualify for PPF

How Do You Qualify for PPF?

To qualify for PPF, you need to have a pension from work or an occupational scheme. This can be in the public sector or private sector depending on what is offered by your employer

You may also get it if you are self-employed and paying into a registered insurance contract that provides pensions benefits – this could include some personal pensions products (collective investments). You must meet certain eligibility criteria too, such as being 65 years old and having paid contributions for at least 20 qualifying years.

Why Does the PPF Only Protect Defined Benefit Pensions?

Pension Protection Fund2 is an investment pot made up of pensions and other sources such as social security payments or private savings.

Nowadays though, we’re living longer than previous generations did so most experts agree that we’ll need at least two-thirds of our final salary for retirement. It’s a good idea to have the PPF as part of your pension pot because it boosts your chances of getting 100% compensation if you don’t get enough money from elsewhere.

Companies are legally obligated to contribute to this fund – which means they can’t just go bankrupt or declare bankruptcy so quickly, meaning their employees’ pensions will be secure.


The Pension Protection Fund only protects defined benefit pensions; there’s no protection if you’ve been offered a money purchase scheme. The government set up the PPF in response to worries that some of today’s pensions were too risky and contributions from employers fund it, over £800 million has been accumulated so far – but there are fears this could be eroded if more companies go bankrupt next year due to the economic crisis.

And the best part?

Unlike defined contribution pension schemes, there is no limit to the amount of money people can put into a defined benefit pension scheme.

The PPF will only protect benefits accrued until April 2005; after that date, companies and their employees must rely on their arrangements.

An independent board manages it, but it has been criticized for not doing enough to address problems outside its remit, such as where final salary schemes rely on risky investments or have lost value through inflation.

What's A PPF Member Means

What’s A PPF Member Means

As a member of the PPF, you can benefit from its protection and see your benefits continue to grow as they would have done under a regular pension scheme.

You will also qualify for early retirement if you are unable to work in any way due to ill health or injury that is unlikely to improve.

The following rules apply: – You must be aged 55 or older;- You cannot receive an occupational/company pension that is larger than what the PPF provides;- Your employer had paid contributions into the scheme for at least five years before it went bankrupt (or dissolved), during which time you have received full payment and worked continuously.

Details of how much money was accrued up until April 2005 by different employers were published on October 31, 2007, showing total assets worth £25.65 billion and total liabilities of £23.11 billion, giving a surplus balance of £2000 million.

On the other hand,

The PPF is financed by an annual contribution from the sponsoring employer to pay for future benefits (currently set at 18% of pensionable earnings), capital contributions made during insolvency or dissolution, and then top-up payments paid in from the Treasury when necessary, as well as income generated through investment returns – these, are all invested by trustees into assets that match with their liability profile (in terms of types, size, and duration).

Got Questions? Check These First

Who funds the Pension Protection Fund?

How much does the Pension Protection Fund pay?

What happens if a pension fund goes bust?

Can I transfer out of the Pension Protection Fund?

In conclusion

In a nutshell,

The Pension Protection Fund was established in 2004 to provide the government with a way to protect pension schemes that their employers had not sufficiently funded.

This is done by taking contributions from profitable companies and investing them into less-profitable ones, thereby bolstering their solvency. To date, this has helped over 1 million people save for retirement who may have otherwise lost everything due to company insolvencies.