I am pleased to announce that today I will launch a consultation on the draft regulations needed to ensure the long service cap in the Pension Protection Fund—the PPF—will operate as intended in all circumstances. The consultation will last for eight weeks and, after I have considered the responses, it is my intention to put before Parliament amending regulations, with the expectation that the PPF long service cap will be in place from April 2017.
I am also pleased to announce that it is the Government’s intention to introduce an equivalent cap for the financial assistance scheme—the FAS—from April 2018.
The PPF provides compensation based on 90% of the person’s accrued pension if they are below the scheme’s normal pension age when the company becomes insolvent. This 90% is subject to a maximum, which would, currently, mean a maximum amount of compensation of £33,678 per annum at age 65.
The Pensions Act 2014 contains provisions to increase this cap in the PPF at 3% for every year of pensionable service in the scheme above 20 years, subject to a new maximum of twice the standard cap. This legislation has not yet been brought into force, as some changes were needed to secondary legislation. It is these changes on which I am now consulting.
The FAS provides financial support for those who lost significant amounts of pension because their defined benefit occupational pension scheme collapsed underfunded. Generally the FAS helps those schemes which were affected before the introduction of the PPF and ensures a person gets at least 90% of the pension due at the point the scheme collapsed. This calculation is subject to a maximum cap. It is our intention to amend this cap so that it will, like the PPF cap, increase by 3% for each full year of pensionable service, over 20 years subject to a new maximum of twice the standard cap.
I will, in due course, be putting before Parliament regulations to implement this new cap. So that the FAS scheme manager has sufficient time to plan for these changes, it is our current intention that the FAS changes will apply from April 2018. Those already being paid assistance will get the uplift applied to their cap amount from the implementation date although, as in the PPF, this increase will not be backdated.
A copy of the consultation document will be placed in the Library.