On 25 June the Minister Of Pensions announced an increase to the amount of compensation some members may receive if their pension scheme is taken over by the Pension Protection Fund due to the fact that their employer has gone into insolvency

Currently if a scheme goes into the Pension Protection Fund (PPF) there are two levels of compensation: if your benefits are already in payment you will receive 100% of the promised benefit (with some restrictions on escalation and spouse benefits). However, if you are under the scheme normal retirement age at the time, you will only be entitled to compensation which is capped at 90% of the benefits subject to a cap of £31,380.

The Minister of Pensions has now recognised that members with long service should be recognised and the change now means that the cap will be increased for long serving members by 3% for every year of service over 20 years.

In the past high earners with deferred benefits in defined benefit schemes have had a difficult decision to make, should they leave their benefits in a final salary scheme with the obvious attractions of a defined pension or move the fund to money purchase in order to secure the situation if the previous employer became insolvent? The increase in the level of compensation now available is very welcome.

There is always two sides to every story.

While one group benefit another will suffer. In this case yet again those employers who have provided their employees with the generous defined benefit schemes will find that as a result of this increase in compensation, their contribution or levy to the Policy Holders Protection Scheme will undoubtedly increase.