Pension alert as the Government warns that this group will receive “less than they expected” | Personal Finance | finance

The Government has clarified how pension rules work as many pensioners face a reduction in the amount they receive through their scheme.

Social Democratic and Labor MP Claire Hanna asked Parliament whether the Government plans to “review (a) indexation, (b) the 90% compensation limit and (c) the potential merits of other changes to the pension. Protection Fund”.

The Pension Protection Fund (PPF) is responsible for the administration of defined benefit schemes where a company has become insolvent.

The 90 per cent figure refers to the fact that if an employee has not reached state pension age when their company becomes insolvent, their payments will be reduced by 90 per cent.

Ms Hanna also asked if there are any plans to carry out a consultation on any changes to the PPF.

Pensions Minister Emma Reynolds said in response: “I have heard about the problems that members of the defined benefit pension scheme are experiencing in adjusting to retirement incomes that may be less than they expected after insolvency of your employer.

“I recognize the importance of these issues to members and will consider this further in the coming months.”

Explaining the rules, Reynolds said: “Pension Protection Fund compensation payments based on benefits accrued after April 6, 1997 are increased in accordance with the consumer price index, limited to 2.5 percent.

“Prior to 6 April 1997, there was no general statutory requirement for defined benefit pensions to be increased at the time of payment, apart from any element of guaranteed minimum pension earned on or after 6 April 1988”.

He also refuted the idea that there is a “cap” on the compensation provided by PPF. He explained: “Compensation is calculated on the date of the employer’s insolvency and on that date is initially 100 per cent of their accrued pension benefits for members who exceed their scheme’s normal retirement age or 90 percent of your accrued pension benefits for members below your plan’s normal retirement age.”

The PPF now manages pension funds from big-name companies such as Woolworths and BHS, and is currently evaluating taking over Wilko’s scheme, after the chain collapsed last year.

One question about the future of the PPF is what will happen to its proposal to become a Public Sector Consolidator, taking on defined benefit (DB) schemes to boost its investment in ‘productive finance’ assets.

The fund said this new consolidation feature could unlock £10bn for productive UK investment.

Kate Jones, chair of the PPF, previously said: “Evidence and stakeholder feedback suggest that more options are needed in the market to take advantage of this window of opportunity with improved funding levels.

“Our maturity and capabilities mean we can operate this new separate fund, which provides more options for schemes and a safe home for transferring members, without affecting the continued delivery of our existing functions.”