2. PPF General
- Q2-1. What difference does being in assessment make to the Plan’s operation?
- Entering assessment meant that the PPF became the formal creditor of NNUK in place of the Plan, and is primarily responsible for the recovery of money from NNUK. However, the Trustee and the PPF have worked closely together to maximise the monies recovered from all sources.
During assessment the Trustee is obliged to operate in accordance with PPF procedures and has to seek approval on many issues that were previously a matter solely for the discretion of the Trustee. This meant, for example, that service accruals for active members ceased, restrictions on discretionary benefits commenced and pension entitlement became restricted to PPF compensation levels.
- Q2-2. What triggers the end of the PPF assessment phase and what are the possible outcomes for Plan members?
- There are three possible outcomes to a PPF assessment:
- The Plan can be ‘rescued’ either as a result of NNUK coming out of administration and continuing to run the Plan or a new employer being found who is willing to take responsibility for the Plan (note that this is no longer a possibility).
- The cash that the Plan receives during the administration process reaches a certain funding level, prescribed by statute, in which case the Plan will not enter the PPF. This means that the obligation to pay member benefits will be transferred from the Plan to insurer(s) or other arrangements.
- If neither of the above outcomes can be achieved then at the end of assessment the Plan will become the responsibility of the PPF who will continue to pay pensions (which will then be referred to as ‘Compensation’) to members in accordance with the benefit levels described in this Q&A.
A statutory calculation (known as a Section 143 determination) has now been carried out by the PPF who have determined that the Plan has reached a funding level which should be sufficient for the Trustee to secure benefits for all members outside the PPF. Hence we are now pursuing Outcome 2 above.
If the Trustees cannot achieve Outcome 2 then Outcome 3 will apply to all Plan members.
- Q2-3. How will the excess funds be allocated across the Plan membership in the event that the Plan manages to recover enough money such that its overall funds exceed the ‘PPF Deficit’ level and we end up establishing member benefits from insurer(s) or other arrangements?
- Please refer to Q8-3 and Q8-4 of this FAQ – Leaving PPF assessment .
- Q2-4. What effect is NNUK being in Administration and the involvement of the PPF having on the investment strategy for Plan assets?
- In order to reflect PPF requirements, a new strategy was put in place in 2009 that was principally designed to match the impact of inflation and interest rate fluctuations on the cost of benefits. The current Statement of Investment Principles (SIP) for the Plan was approved by the Trustee on November 27, 2017.
The PPF’s own SIP was last updated in September 2017.
- Q2-5. What are the options for transferring my benefits out of the Plan since NNUK filed for administration?
- With only a few exceptions, the Trustee is not permitted to make any transfers during assessment. All proposed transfers not fully completed by the start of assessment, January 14th 2009, were stopped. However, if the Trustee is successful in securing benefits outside the PPF (Outcome 2 in Q2-2 above) then transfers will again become possible for members who have not yet put their pensions into payment.
Whilst the Plan is still in PPF assessment, transfers may be made in certain circumstances (for example, as a result of a pension sharing order made by a court as part of divorce proceedings) but this would only be at the same level of benefit that would have been available under PPF rules.
If you have an AVC fund then please refer to Q4-3 for options available to you.
- Q2-6. Do I have to declare the compensation I receive from the Pension Protection Fund to the Department for Work and Pensions?
- If the Plan were to become the responsibility of the PPF and you are in receipt of means tested social security benefits then you would be required to declare any compensation payment(s) you receive from the PPF to the appropriate benefits authority, the Pension Service or local council. PPF compensation must also be declared to HMRC.
- Q2-7. Under Plan Rules all pension increases occurred on April 1st each year – is the amount and timing still the same under PPF rules?
- Note: The information provided in response to this question is relevant and correct whilst the Plan remains in the PPF assessment period. If we are successful in securing benefits outside the PPF then some of the detail set out below may change. Any new arrangements will be covered in personalised letters and other materials which will be sent to each member.
This answer and the table below deals with increases to pensions in payment. Please refer to Q7-10 for details of increases to pensions in deferment.
Future increases to pensions in payment will be in accordance with the table below – in all cases these will be lower than under the Plan. Only that part of your pension that you earned whilst working for NNUK on or after April 6, 1997 will increase. However, if your pension includes any amounts resulting from externally invested AVCs or redundancy payments taken into the Plan at the same time as start of retirement then any increases to these amounts will continue to be determined in accordance with Plan rules – see Q4-3 for more AVC details.
Element Increase Date Pensions in Payment Increase Rate Capped At AVC/Redundancy amount * April 1st 3% pa – RPI Pension earned pre-April 1997 No increase N/A Pension earned April 1997 onwards ** January 1st 2.5% pa – CPI
* The amount of increase is determined by the increase in Retail Prices Index (RPI) in the twelve months up to the previous December 31st (capped at 3%). In cases where the RPI is negative then no increase (or decrease) applies. In the twelve months ending December 31, 2017 RPI was 4.1%. This means that with effect from April 1, 2018 the AVC/Redundancy increase will be 3.0%. Note that there are other ‘money purchase’ pension elements that are treated differently to the foregoing.
** The amount of increase is determined by the increase in Consumer Prices Index (CPI) in the twelve months up to the previous May 31st (capped at 2.5%). In cases where the CPI is negative then no change is made. In the twelve months ending May 31, 2017 CPI was 2.9% so there was a 2.5% increase in the ‘April 1997 onwards’ pension on January 1, 2018.
- By way of example, if a member had no pension resulting from AVCs and retired in April 2006 with exactly fifteen years continuous service then he/she would have six years service prior to April 1997 and nine years service from April 1997 onwards. This means that only 9/15 (or 60%) of his/her pension would be eligible for CPI increases capped at 2.5% per annum.
If your pension includes an amount resulting from a redundancy payment but you deferred taking your pension beyond your redundancy date then this amount is treated as being a part of your ‘normal’ pension so we would need to clarify whether this is treated as pre or post April 1997. The answer is – if you were made redundant (i.e. ceased NNUK employment) prior to April 6, 1997 then this amount is treated as ‘pre April 1997’ but if you were made redundant on or after April 6, 1997 then it is treated as ‘April 1997 onwards’.
If your pension includes any Defined Benefit (DB) AVCs then it may not be obvious whether they are classed as being ‘pre April 1997’ or ‘April 1997 onwards’ for the calculation of any ongoing increases. In the rules below the references to start and end dates refer to the dates when contributions were actually made by members – note that all contributions ceased at the start of assessment on January 14, 2009:
- Contracts with a start and end date before April 6, 1997 will not qualify for increases
- Contracts with a start date on/after April 6, 1997 will qualify for increases
- Contracts with a start date before April 6, 1997 and an end date on/after April 6, 1997 will be split pro rata and only the period on/after April 6, 1997 will qualify for increases. For example, a contract that started contributions in April 1996 and ended in April 2000 will qualify for ongoing increases on three quarters (75%) of its value.
- Q2-8. Can I go online and access PPF documents and information directly?
- Yes. The main link to the PPF website is: http://www.pensionprotectionfund.org.uk/ and there is also a ‘members’ website: http://www.ppfonline.org.uk/
The Pensions Regulator website contains information about the work of the Regulator and detailed information for pension plan members:
- The following links may also be useful:
- General description of compensation: http://www.pensionprotectionfund.org.uk/Pages/Compensation.aspx
- More detailed compensation information including survivors/children, divorce and early payment : https://www.ppfonline.org.uk/mycompensation/hopl.chi/wui/genpr1ui.html?hopsess=naikjdikhdGpjwkbxnakbdObdkfVYPkk
- Frequently asked questions on the PPF ‘members’ website: https://www.ppfonline.org.uk/mycompensation/hopl.chi/wui/genpr2ui.html?hopsess=naikjdikhdGpjwkbxnakbdObdkfVYPkk
- Beginners Guide to the PPF (video): http://www.pensionprotectionfund.org.uk/News/Pages/details.aspx?itemID=317
- Q2-9. I have read reports in the press that the Nortel scheme will double the number of pensioners that the PPF is responsible for and they may be forced to cut back benefits. Surely the government guarantees the PPF so that this couldn’t happen?
- The PPF has proved resilient through the recent recession and is confident that it has enough cash to continue to pay compensation. The PPF currently has over 235,000 members, and assets of £34.1 billion.
In August 2010 the PPF published its funding strategy on how it aims to be fully funded, without the need to collect any further levies, by 2030. Members may find that the Strategic Plan 2016 provides useful information on PPF future plans. The PPF believes it shows they are committed to having enough money to pay existing levels of compensation to current and future PPF members and becoming self-sufficient by the time the number of pension schemes paying levies reduces. The PPF can run at a deficit over a long period of time. Depending on the size of that deficit, it will decide if and when it needs to take any action to manage the deficit. There are various ways in which it may seek to do this and, currently, the PPF does not envisage one of those ways being a reduction in levels of PPF compensation.
The PPF believes that the pension protection framework is resilient and that there is no need for a Government bailout or guarantee of the PPF.
The PPF continues to receive income from the pension protection levy and intends to collect £615 million during the 2017/18 financial year. The PPF has said that it would raise the levy before considering reducing compensation.
- Q2-10. Is the PPF currently in surplus or deficit?
- The PPF Annual Report for 2015/16 reports a SURPLUS of £6.1B, which represents a funding position of 121.6%.