The Government has announced that the cap on compensation paid by the Pension Protection Fund (PPF) will be changed to give more money to long-serving employees with large pension pots.
Currently, benefits for members of schemes that end up in the PPF after an employer insolvency who have not reached normal retirement age are capped at £31,380 a year. However, the Department for Work and Pensions (DWP) this week revealed that this cap would be increased by 3% for every full year of service above 20 years completed by an employee.
This means that someone who has put money into a pension scheme for 40 years and amassed a pension of £50,000, only to see their scheme fold, would receive £45,000 rather than the £31,380, which is the current capped amount.
Commenting, Minister for Pensions, Steve Webb, said:
“It cannot be right that someone who has been with a company for much of their working life – and relies heavily on that for their pension income – gets the same in compensation as someone with far shorter service and who could also have other pension income to fall back on.”
The Confederation of British Industry (CBI) has responded to the news by describing the proposed changes as a “bitter blow to firms struggling to drive economic growth and fund their own pension schemes”.
Neil Carberry, CBI Director for Employment and Skills, said:
“The fund is paid for by business, not the Government. At a cost of over £600m a year, it is already more than double the original plan, and the levy is likely to rise again this year. An even greater levy will hold back business investment and growth.
“Businesses support the PPF and would have expected more engagement before this announcement was made.”