Each year our compensation cap for members is subject to review by the Department of Work and Pensions, with changes taking effect from 1 April.
If you were under your normal pension age when your scheme entered our assessment period, there is a cap on the total amount of annual compensation we can pay to you. Only around 0.5% of our members are affected by the compensation cap, which means the vast majority of members aren’t affected.
As of 1 April, the PPF cap at age 65 (set by the DWP) will remain at the current level of £41,461.07 per annum. This has been confirmed by the DWP and is in response to the UK annual average wage inflation having decreased over the year.
The compensation cap for ages other than 65 are also not changing from 1 April. The cap amounts quoted here are multiplied by 90 per cent in order to calculate the amount of compensation the member will receive.
If you’re already receiving payments from us these changes won’t affect you, they only impact your compensation if you haven’t retired yet.
Why hasn’t the PPF cap changed?
UK average earnings fell by 1.0 per cent between April 2019 and April 2020 so the DWP have decided to keep the compensation cap at age 65 unchanged.
Calculations for ages other than 65 consider the compensation cap at age 65 and expectations about future interest rates, inflation and mortality. These calculations show that the compensation cap for ages other than 65 remain reasonable.
The compensation cap factors should ensure equivalence of value between someone retiring at a different age and someone retiring at age 65. This needs to take account of the current level of market prices. When the market moves, the caps will change.
For Financial Assistance Scheme (FAS) members, there is a cap on the amount of expected pension we can consider when we work out your assistance. Only a small proportion of our members are affected by the cap, which means the vast majority of members aren’t affected.
As of 1 April, the FAS cap will increase from £36,717 p.a. to £36,901 p.a. The increase reflects the level of inflation over the period. The new cap will apply to members retiring on or after 1 April — if you’re already receiving payments from us these changes won’t affect you.
Why will the FAS cap increase but not the PPF cap?
The PPF operate under different regulations to FAS. The PPF’s regulations require the compensation cap to be linked to increases in UK average earnings, whereas the FAS regulations require its cap to be linked to increases in inflation.