Protection & Redress

The Pension Protection Fund seeks to protect members of private sector defined benefit schemes that have become insolvent within sufficient funds. It applies to UK-based defined benefit schemes that would become insolvent or are not sufficiently funded. The fund may provide benefits in accordance with the pension compensation provisions.

It provides 100 percent compensation for those attaining normal pension age with a due percentage entitlement for those who have not yet reached pension age. There are other limitations.

Most private sector schemes are eligible for the Pension Protection Fund; defined contribution schemes are not eligible.

After an assessment, an insolvency event occurs in relation to a pension scheme, an assessment period arises during which the board will consider whether the PPF will take responsibility for the scheme. It must take responsibility where the value of the scheme assets vests in the amount of the protected liabilities immediately before the qualifying event, and the scheme rescue has been deemed impossible by an insolvency practitioner. The scheme is frozen for a period.

If the PPF may issue a transfer notice to the trustees and assume responsibility for the scheme. In this event, all the assets and liabilities are transferred to the scheme, and the trustees are discharged. The PPF is responsible for securing compensation as paid.

The board of the PPF consists of a chairman and other members who are independent of the regulator.

The PPF is funded by a pension protection levy payable by trustees and managers. The levy comprises a risk-based levy assessed by reference to the difference between the value of the scheme’s assets and protected liabilities, the likelihood of insolvency, and other factors that the board takes into account. There is a scheme-based levy assessed by reference to scheme factors, including the amount of liabilities, the number of members, types of members, and the total amount of pensionable earnings.

The risk-based element of the contribution may be reduced to zero if certain evaluation criteria are met.

The scheme-based value is no more than 20 percent of the total pension protection levy. The rest is to be made up by the risk protection levy.

The board of the PPF determines factors for the assessment of levies annually. Their current practice is to fix the levy for three years at a time to provide greater certainty. They seek to move funding levels.

The levy is subject to a ceiling set by the Secretary of State; the risk-based levy is capped at 0.75 percent of the scheme’s liabilities.

The PSF engages credit assessment experts in relation to employers who are graded accordingly.

The board may issue a notice to persons, including trustees and managers, employers, and advisors, requiring the production of documents or other information relevant to the exercise of the board’s functions in relation to an occupational pension scheme.

The board’s officers have extensive powers to enter premises, require the production of documents, make inquiries, etc. It is an offence to fail or neglect to comply with requirements made without reasonable excuse.

The board manages the Fraud Compensation Fund. From it, compensation may be paid to occupational scheme members where there has been a misappropriation of assets or fraud in the scheme with an insolvent employer; it may be payable where the value of the assets has been reduced as a consequence of an act or omission that constitutes offensive dishonesty, including intention to defraud, and the qualifying insolvency event has occurred, and the scheme failure notice has been issued.

The Pensions Advisory Service is an independent grant-aided non-profit-making company limited by guarantees. It comprises a network of local advisors with experience in the pension profession. Its purpose is to provide free assistance to members of the public with difficulties they have failed to resolve with the pension trustees, administrators, or providers of their pension scheme.

If the service is unable to resolve the problem but leaves the complaint as valid, it may assist in making a formal complaint to the Pension Ombudsman. The service may not initiate legal action, give financial advice offered by some state pension benefits, or investigate matters already dealt with by the Pensions Ombudsman.

The Pensions Ombudsman was established in 1990. It is an independent entity. The Ombudsman is appointed by the Secretary of State.

The Ombudsman investigates complaints of maladministration in relation to pensions, a range of occupational and trust-based pension schemes. This includes bias, neglect, retention in competence, or arbitrary behavior. The complaint must be such as to lead to injustice, which may include financial loss but also delay, inconvenience, distress, etc.

The Pension Ombudsman may not address or determine complaints unless an internal complaint resolution procedure has first been followed, unless the Ombudsman is satisfied there is no prospect of such resolution within a reasonable time.

The Ombudsman may not investigate a complaint if more than three years have passed since the act or omission complained of occurred or three years from the date at which the complainant knew or ought to have known of its occurrence.

The Ombudsman has published its procedural rules in a booklet. Upon receipt of a complaint, it is investigated by the Ombudsman’s office staff, who make an initial review. Copies of the complaint and documents are given to the appropriate respondent, such as the trustees, employer, etc., or other persons subject to allegations.

The Ombudsman has the power to require documents and may require power. It may hold oral hearings if necessary.

The Ombudsman must comply with natural justice and fair procedure.

Generally, the complainant and respondent are given a copy of the complaint, and there is 21 days in which to reply. Time may be extended. Ultimately, the Ombudsman makes a written provisional decision sent out to both respondent and complainant for comment. After receiving comments if any, the final determination is made.

The determination may direct persons responsible for the management of the scheme to take or refrain from taking such action as the Ombudsman considers appropriate. It appears that the Ombudsman can award compensation for distress and inconvenience.

The decision of the Ombudsman is final and binding, subject to an appeal on the point of law to the High Court only.