What is the Pension Protection Fund and how does it work?

The Pension Protection Fund (PPF) pays compensation to members of defined benefit pension schemes when the employer fails and the scheme cannot pay.

That is the Pension Protection Fund explained in a sentence: a safety net for final salary and career average pensions, with its own rules on how much it pays and how payments rise. What you would receive turns on your scheme's rules and on where you stood against its normal pension age. Because the answer depends on your scheme and your age, the form on this page can pass what you tell it to an FCA-authorised adviser firm, which will ring you back; no payment is asked for.

What the PPF is, how it is funded and when it steps in

The PPF protects members of defined benefit schemes, "often known as final salary schemes", if the employer funding the pension becomes insolvent. It was set up in 2005 by the Pensions Act 2004, is run by an independent Board and, as a public corporation, reports to Parliament through the Secretary of State for Work and Pensions. Not sure what you have? See how to check, or what a final salary pension is.

It raises money in four ways: investment returns, assets from schemes that transfer to it, assets recovered from insolvent employers and, until 2024/25, a compulsory levy on eligible schemes. Conventional schemes pay no levy in 2026/27; Alternative Covenant Schemes still do. Section 123 of the Pension Schemes Act 2026, in force since 29 June 2026, lets the Board reduce the levy to zero or a low amount and raise it again within a reasonable time frame. The Annual Report 2025/26 shows £31.5bn of assets under management, £16.4bn of current claims liabilities and £15.1bn of future claims and risk reserves; the PPF estimates that paying pre-1997 increases would have cut those reserves by £1.4bn to £13.7bn at 31 March 2026.

An employer merely struggling does not trigger it. Under section 132 of the Pensions Act 2004 an assessment period begins when a qualifying insolvency event occurs for the employer, and ends when the PPF stops being involved, when the trustees receive a transfer notice, or when the conditions in section 154(2) are met (enough assets without needing the PPF). A valuation shows whether the scheme can afford PPF-level benefits, which the PPF says takes two years on average; if it cannot, the scheme transfers across. Meanwhile section 138 requires scheme benefits to be cut as far as necessary so they do not exceed what the PPF would pay. For the wider question, see are final salary pensions protected?

How much the PPF pays, and what happened to the cap

GOV.UK says members are usually protected by the PPF, which pays 100% compensation if you have reached the scheme's pension age and 90% if you are below it. The detail is in Schedule 7 to the Pensions Act 2004, and the test is made at the assessment date, the day the assessment period began, not the day the scheme transfers or the day you retire.

• Already drawing a pension. 100% of the pension in payment just before the assessment date, plus later increases, unless you had not reached normal pension age by then, when it is 90%. A pension paid early on ill-health grounds under the scheme's rules avoids the 90% reduction.
• Not yet drawing, below normal pension age at the assessment date. 90% of the pension built up.
• Not yet drawing, at or past normal pension age at the assessment date. 100%.

The PPF itself says the level depends on "a number of factors, including whether you passed your normal pension age when you retired and in which year you retired." For assessment dates on or after 1 January 2024 a floor also applies: under paragraph 22A of Schedule 7, if the compensation is worth less than 50% of the benefits accrued under the scheme rules, valued at the start of the assessment period, it is raised to 50% in line with the Board's guidance.

Schedule 7 also used to cap compensation. The PPF reported on 20 September 2021 that in July 2021 the Court of Appeal ruled "the PPF compensation cap was unlawful on the grounds of age discrimination"; by 2 December 2021 it no longer applied the cap to new retirees and had started removing it from existing ones. Regulation 3(11) of the Pensions Act 2004 (Amendment) (Pension Protection Fund Compensation) Regulations 2023 (SI 2023/1309, made 4 December 2023, in force immediately before the end of 2023) then directed: "Omit paragraphs 26, 26A and 27", the cap paragraphs. The removal sits there, not in the Pension Schemes Act 2026. Early and late payment are in early and late retirement factors, partners in PPF death benefits and tax in is PPF compensation taxable?

Yearly increases: service after 1997 and before it

Indexation is the annual increase on compensation in payment. The PPF says legislation governs it and it depends on when the pension was built up.

Service after 5 April 1997. Payments rise each 1 January in line with the Consumer Prices Index, up to 2.5% a year, and are not cut if CPI is below zero. Paragraph 28 of Schedule 7 sets the rate as the lesser of the rise in prices over the 12 months ending with the 31st May before the indexation date, and 2.5%. The Board can vary the rate but has not; for January 2027 it has left the legal rates unchanged.

Service before 6 April 1997. These payments have not historically increased. Sections 109 to 111 of the Pension Schemes Act 2026 (Royal Assent 29 April 2026) provide for increases, for PPF members and for Financial Assistance Scheme standard assistance. As of 20 October 2026:

• The indexation chapter comes into force on a day set by regulations; section 109 is in force from Royal Assent only so far as it allows regulations to be made. The one commencement order listed on legislation.gov.uk, SI 2026/669, brings in section 123, the levy, not the indexation sections.
• The PPF expects to pay up to 2.5% a year where the member's original scheme required pre-1997 increases, with no backdating: first increases on 1 January 2027, or 1 January 2028 for schemes that gave pre-1997 increases only on guaranteed minimum pension built up from 6 April 1988, when only part of the pre-1997 pension is increased.

Those dates are the PPF's expectations, not fixed in law. Setting compensation of this kind against your State Pension and savings is detailed work; one way to do it is a telephone conversation with an FCA-authorised adviser, booked when you return the form on this page with a phone number. Ordinary scheme increases are in do final salary pensions increase? and what a guaranteed minimum pension is.

Who the PPF does not cover, and the Financial Assistance Scheme

The PPF does not protect defined contribution schemes, where the pension depends on what was paid in and how investments performed, or public sector schemes; its ineligible list includes unfunded public service schemes and local government schemes. GOV.UK says a defined contribution pot is not lost if the employer goes bust, since these pensions are usually run by providers, and that the Financial Services Compensation Scheme may pay if an FCA-authorised provider cannot. The limits are in what happens if an annuity provider goes bust; see also what a SIPP is.

The Financial Assistance Scheme (FAS) helps members of certain defined benefit schemes that cannot get PPF compensation, in particular schemes that began winding up between January 1997 and April 2005. The PPF runs it for the government, HM Treasury funds it rather than a levy, and it takes no new members. The FAS page compares the two.

Questions about the PPF

Is the Pension Protection Fund part of the government?

It was created by statute and reports to Parliament through the Secretary of State, but its own Board runs it as a public corporation.

Does the PPF step in as soon as my employer is in trouble?

No. The trigger is an insolvency event, after which an assessment period starts. If you are worried, the PPF says to speak to your scheme trustee or administrator.

Can I transfer out while the scheme is being assessed?

The PPF says that once assessment has begun it is generally not possible, by law. Before that, normal rules apply, including the legal advice requirement above £30,000, and the PPF notes that "Official guidance says it's in the best interests of most people to stay in their DB pension." See transfer values and how to transfer a pension.

How can I tell whether a message from the PPF is genuine?

The PPF says its emails and letters use your name, never "Dear member", and that it will never ask for your password. It also says cold calling about pensions is illegal and likely a sign of a scam, and will check a message if you call 0330 123 2222.

Your next step

The PPF pays 100% or 90% by reference to normal pension age at the assessment date, adds increases of up to 2.5% on later service, and no longer applies the old cap. Should you want your own defined benefit pension reviewed beside the rest of your income, the form on this page schedules a ring-back by an FCA-authorised adviser firm, and costs you nothing.

Sources: PPF, What we do, Will my payments increase?, pre-97 indexation, How we're funded and Annual Report 2025/26; Pensions Act 2004, Schedule 7, SI 2023/1309, Pension Schemes Act 2026 and SI 2026/669; GOV.UK, Protection for your pension; FSCS, Pensions.