Pension Protection Fund

Due to the recent collapse of Thomas Cook and their entering liquidation, I think now would be a good time to highlight how this could impact on a defined benefit pension.


Britain’s Pension Protection Fund (PPF) said it would assess the funding levels of Thomas Cook’s retirement schemes, following the collapse of the world’s oldest travel firm. PPF is an industry-funded scheme set up to protect the pensions of employees in failing companies.

If the defined benefits scheme is unable to pay the liabilities, and the sponsoring employer runs into financial difficulties, the benefits can be paid by the PPF.

The PPF, however, has rules relating to both the maximum benefits payable and the way in which benefits are increased, pre and post-retirement.

If you have retired

If you have been receiving a pension from your scheme before your former employer went bust or if you were beyond the scheme’s normal retirement age when your employer went bust, the Pension Protection Fund will generally pay 100 per cent level of compensation. This means they will generally pay you the same amount in compensation when your scheme enters the PPF.

Your payments relating to pensionable service from 5 April 1997 will then rise in line with inflation each year, subject to a maximum of 2.5 per cent a year. Payments relating to service before that date will not increase. This information may also apply if you retired through ill-health or if you are receiving a pension in relation to someone who has died.

If you retired early or have yet to retire 

If you retired early and had not yet reached your scheme’s normal pension age when your employer went bust, then you will generally receive 90% compensation based on what your pension was worth at the time, this is capped to a certain level.

The annual benefits payable are capped at age 65 at £39,006.18 per annum. Benefits are, however, limited to 90% of the entitlement for deferred members and those retiring before the scheme retirement age. This means the true maximum is reduced to £35,105.56 per annum.

There is provision for members with ‘long service’ and those who were members of their scheme for more than 20 years, the cap is increased by 3% for each additional year up to a maximum of double the standard cap.

If you die

After your death, the PPF will pay compensation to any children you may have who are under 18 years old, or under 23 if they are in full-time education or have a disability. They also generally pay compensation to any legal spouse, civil partner or other relevant partner. However, individual circumstances may differ depending on the rules of the former pension scheme.


Therefore, there is potential that members of the scheme could suffer a reduction in their pensions. The PPF could take up to 18/24 months to assess the scheme. The scheme confirmed recently that it has surplus assets in the scheme so we are yet to see what the timescale of possibly entering the PPF will be. It is certainly something to be aware of as this could apply to other schemes if the sponsoring employer goes into liquidation.

As a result, this could lead to an increase in members of defined benefit schemes looking for advice with regards to their pension and if it remains suitable for them.

Peter Rhoden – Lead Paraplanner

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