The Pension Protection Fund: if your employer goes bust

If the company you work for goes bust, the pension you were promised does not disappear. For members of defined benefit (final salary) schemes, the Pension Protection Fund (PPF) exists for exactly this situation: it is a statutory fund that protects members of DB schemes when the scheme's sponsor becomes insolvent¹. When your employer becomes insolvent and your scheme transfers into the PPF, you become a PPF member and receive pension payments from the PPF rather than from your former scheme².

The PPF was set up in April 2005 as a statutory public corporation to provide people with a UK defined benefit pension with protection if their employer, and its pension scheme, can no longer afford to pay the promised pension³. It pays compensation to members of eligible occupational pension schemes where the sponsoring employer has become insolvent and the scheme's assets are not enough to meet its pension commitments⁴.

How much you receive depends mainly on your age. Members who have reached the scheme's pension age get 100% compensation; those below it get 90%⁵. Payments generally rise in line with inflation each year, subject to a maximum of 2.5%, and only for pension built up after 5 April 1997⁶. The PPF does not protect defined contribution pensions at all: those fall under the Financial Services Compensation Scheme instead⁷.

What the Pension Protection Fund protects

The Pension Protection Fund protects members of defined benefit pension schemes, sometimes called final salary or salary-related schemes, where the employer sponsoring the scheme becomes insolvent⁷. A defined benefit scheme promises you a pension based on your salary and years of service, so the promise only holds if the scheme has enough money to pay it. The PPF exists for the case where it does not: if the pension scheme you paid into does not have enough funds to pay the pension it promised, the PPF provides compensation⁷.

The trigger is employer insolvency. If the employer sponsoring your defined benefit pension scheme becomes insolvent, the PPF assesses the scheme to see whether it can be taken over⁸. The PPF's own description of its role is straightforward:

Explanatory notes to the Pension Schemes Act 2021⁴

Once a scheme transfers, your relationship changes: you stop being a member of your old scheme and become a PPF member. The PPF often calls the payments "compensation" because it is paying you compensation for the pension that you have lost². In practice the money arrives as a regular pension payment, but the legal basis is different, and that difference is why some of the rules below, such as the cap on increases, do not match what your old scheme promised.

The PPF protects millions of people in the UK who are members of defined benefit pension schemes⁷. It is not a guarantee of every promise a scheme ever made: it pays to its own rules, which are set in law, and those rules are what the rest of this page explains. If you are unsure what kind of pension you have, the guides to defined benefit pensions and defined contribution pensions explain the difference.

Who is covered and who is not

The PPF covers members of eligible occupational defined benefit schemes in the UK, whether you are still working for the employer, have left the scheme, or have already retired. When your employer becomes insolvent and your scheme transfers into the PPF, you become a PPF member². Membership does not depend on still being employed: deferred members, people who left the scheme years earlier, are protected too, provided they meet the other conditions.

There are exclusions, and they matter if you have an old pension from decades ago:

• Members who left the scheme before 6 April 1975 are not protected. In these circumstances, a refund of contributions (minus tax and National Insurance) is likely to have been paid at the time⁷.
• Defined contribution schemes are not protected by the PPF. The PPF states plainly: "We don't protect defined contribution schemes, sometimes known as 'money purchase' pension schemes"⁷.
• Public sector schemes are a separate world. Unfunded public sector schemes, such as those for civil servants, teachers and NHS staff, are not part of the PPF system; funded schemes such as the Local Government Pension Scheme are included in the official statistics' scope but are backed differently⁹. The guide to public sector pension schemes covers those.

If you need to show you have benefits in a scheme that transferred to the PPF, the PPF asks for at least one of the following documents: a letter or preserved benefit statement confirming your benefits were preserved at the date you left the scheme, preserved benefit statements sent after you left, or pension correspondence sent after you left⁷. If your scheme has only very recently transferred, it might not be showing in the PPF's records yet¹⁰. The guide to finding lost pensions explains how to trace old schemes in the first place.

The assessment period takes on average two years

When the sponsoring employer becomes insolvent, the PPF does not take the scheme over immediately. It first runs an assessment period, examining the scheme to see whether it can pay benefits at least at PPF levels. On average this process takes two years to complete⁸. It has to be completed before a scheme can be taken over, or "transfer", to the PPF⁸.

During the assessment period the scheme continues to operate, and members are usually told what is happening by the scheme's trustees. The length varies because each insolvency is different: the PPF must establish the scheme's financial position, and the insolvency process of the employer has to run its course. Two years is an average, not a maximum, so some assessments finish faster and others take longer.

The practical implication is patience. Your pension is not lost during the assessment, but you cannot treat the PPF's rules as applying from day one, and a transfer out of the scheme during this window is a decision that needs care. The guides on transferring out of a final salary pension and the risks of transferring cover what to weigh up.

How much you get: 100% or 90% compensation

The headline rule is simple. You get 100% compensation if you have reached the scheme's pension age, and 90% compensation if you are below it⁵. Members who have not reached the scheme's normal pension age at the assessment date will receive up to 90% compensation when they reach that age, and members who have retired but not reached their normal pension age at the assessment date also receive up to 90%⁶.

The level of compensation, and whether your compensation increases over time, depends on whether you had passed your normal pension age when you retired and in which year you retired². So two members of the same scheme can receive different proportions of their promised pension, purely because of their ages at the assessment date.

The PPF's own booklet gives a worked example. Lisa, an active employee aged 47 with a pensionable salary of £23,000 a year in a scheme with a normal pension age of 60, would receive a total of £4,140 a year, taking into account the 90% compensation level, based on her deferred pension at age 47⁶. That figure is an illustration for one hypothetical member, not a general entitlement, but it shows how the 90% level feeds through into a real annual amount.

Compensation is normally paid from the scheme's normal pension age. The rules on when you can access a pension generally, and the tax that applies, are covered in when can I access my pension? and how pension income is taxed.

The compensation cap for younger members

Historically, the PPF applied a cap to the compensation paid to members below the scheme's normal pension age, which meant some people who retired early received less than 90% of a large pension. That cap has been changed by Parliament more than once. The Pensions Act 2014 contains amendments increasing the Pension Protection Fund compensation cap for people with long pensionable service¹¹, and the government published an impact assessment on 4 July 2013 covering changes to the Pensions Bill affecting the operation of the compensation cap¹².

The cap was later removed altogether following a court ruling. The PPF's guidance on the European Court of Justice ruling explains that the majority of affected members were expected to see their compensation increased and arrears paid in the second half of 2022¹³. The PPF applied an order of priority to this work: those who had retired within the last year, then those most affected by the removal of the cap, then those who did not receive an interim Hampshire increase but for whom the PPF held accurate data, and finally everyone else¹³.

Legislation has also refined how compensation is calculated in related situations. The Pension Schemes Act 2021 provides for a fixed pension to be treated as pensionable service for the purposes of calculating PPF compensation, except when aggregating benefits for the cap¹⁴. For most readers the practical position today is that the old cap no longer reduces compensation in the way it once did, but if you were a capped member and believe arrears are owed, the PPF's guidance is the place to check¹³.

Increases: only pension built up after 5 April 1997 rises, up to 2.5% a year

PPF compensation is not frozen, but it does not rise in full either. PPF payments rise in line with the Consumer Prices Index (CPI) measure of inflation each year, up to 2.5% a year, and this applies to service accrued after 6 April 1997¹⁵. The PPF's booklet puts the same rule as: benefit payments will generally rise in line with inflation each year, subject to a maximum of 2.5%, and this will only apply to pensionable service after 5 April 1997⁶.

The cut-off date matters. Only the part of your pension built up from 5 April 1997 onwards receives increases; the part built up before that date stays level⁹. This is one of the real differences between PPF compensation and the pension your scheme originally promised, because many schemes promised increases on a larger share of your pension than the PPF pays.

Where a Guaranteed Minimum Pension (GMP) is involved, separate rules apply. GMP arises if you were contracted out of the Additional State Pension from 6 April 1978 to 5 April 1997¹⁶. Pension schemes have to increase the amount of GMP built up from April 1988 to April 1997 in line with living costs, capped at three per cent¹⁶. The guide to contracting out and the Guaranteed Minimum Pension explains how GMP works and how it can affect your payments.

Pre-1997 increases: letters to eligible members from 7 July 2026

The rules on increases for pension built up before 1997 are changing. The Pension Schemes Act 2026 enables the PPF to pay inflation increases, up to 2.5% per year, on all or a proportion of pre-97 compensation payments, where the original schemes provided for mandatory or statutory pre-97 increases¹⁵. This is a significant extension: previously, pre-1997 service generally received no increases at all under the PPF.

Who benefits depends on the scheme's own rules. Members of schemes that provided pre-97 increases will, in most cases, get increases on a proportion of their pre-97 benefits from the PPF and the Financial Assistance Scheme if they have pensionable service on or after 6 April 1988¹⁰. The PPF expects around 39,000 PPF members and around 27,000 FAS members to be part of the group entitled only to pre-97 increases on post-88 GMP¹⁷.

The PPF is contacting members directly. From 7 July 2026, it will contact all members who are eligible for pre-97 increases to make them aware of the changes to their entitlement, and it could take up to two months for all communications to be sent and received¹⁷. For increases payable in January 2027, the Board of the PPF has decided to leave the levels of indexation set in law unchanged for both pre-97 and post-97 increases¹⁷. For the group entitled only to pre-97 increases on post-88 GMP, the date from which the first increases are expected to be payable is 1 January 2028¹⁷.

Where the PPF does not apply: defined contribution pensions and the FSCS

The PPF's protection stops at defined benefit schemes. It does not protect defined contribution schemes, sometimes known as money purchase schemes⁷. In a defined contribution workplace scheme, your employer chooses a pension provider to invest your pension contributions, and the pot belongs to you, invested separately from the employer's business. If your employer goes bust, you will not lose your pension fund⁵. If it is a trust-based scheme, you will get your pension, but your pot might be reduced because administration costs are paid out of members' pots⁵.

For defined contribution pensions, the protection that matters is the Financial Services Compensation Scheme (FSCS). FSCS covers a range of financial products if a UK-authorised financial firm fails, including deposits, insurance, investments and pensions¹⁸. It is set up by parliament, funded by the financial services industry through a levy on authorised firms, and free to use¹⁹.

FSCS pension protection works differently from the PPF:

FSCS protection varies depending on the type of pension product, and there are limits to the amount it can compensate²⁰. In respect of SIPPs, where FSCS can pay compensation, it will normally cover the pension at 100% with an upper cap of £85,000²¹. Where the claim is about bad advice to transfer out of a defined benefit scheme, FSCS protects the advice received, up to its £85,000 compensation limit for pension advice, but its protection does not include DB pension schemes themselves, which are the PPF's territory²².

A condition of FSCS protection is authorisation: FSCS only covers financial services firms that have been authorised by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA) to do business in the UK²⁰. You can check a provider's status by searching the FCA Register. The comparison page PPF vs FSCS protection sets the two schemes side by side, and the guide to workplace pension providers and master trusts covers who runs DC schemes.

How the PPF is funded

The PPF is not funded by the government or the taxpayer³. Despite being a public body set up by the Pensions Act 2004, it raises the money it needs to pay compensation to current and future members, and to cover its running costs, from three sources: its investments, the assets of schemes that transfer into it, and recoveries, meaning money and other assets recovered from the insolvent employers of the schemes it takes on³.

Its financial position has strengthened considerably. A report by the Work and Pensions Committee noted that the PPF is now in a strong financial position, with a reserve fund of more than £13 billion, and referred elsewhere in the same report to the PPF having £12 billion in reserves²³. The two figures appear in the same document; the larger is the headline reserve fund figure. The PPF has also described its experience of consolidating over 2,000 schemes into the PPF and the Financial Assistance Scheme²³.

The PPF has grown into an organisation with more than £39 billion of assets on behalf of around 295,000 members³. For a member, the funding model matters in one main way: PPF compensation does not depend on the solvency of your former employer or the health of your old scheme once the scheme has transferred. The money comes from the PPF's own resources and the levy-backed system behind it.

Fraud, theft and scams

If there is a shortfall in your workplace pension fund caused by fraud or theft, the Pension Protection Fund may be able to recover some money⁵. This is a recovery power rather than a guarantee, but it means fraud in the scheme does not automatically leave members with nothing.

Where the fraud involves a personal pension or an authorised firm, the FSCS is the relevant body. Its guidance on stolen pensions states that protection varies depending on the type of pension product and there are limits to the amount it can compensate²⁰. For claims involving transfers out of defined contribution schemes, FSCS's approach to calculating Notional Transfer Values is changing on 20 November 2026, with compensation for claims decided on or after that date calculated using its new in-house methodology²⁴.

Pension scams are a separate risk, and transferring a pension on the strength of a cold call or an unsolicited offer can destroy savings that no compensation scheme will restore. The warning signs and where to get help are covered in the guide to pension scams.

Where to get help and how to complain

Free, impartial help is available at every stage. For questions about your own PPF membership, the PPF itself is the first point of contact, and its member pages explain what its payments mean². For general questions about your pension options, Pension Wise offers free guidance.

If you are worried about how your workplace scheme is being run, The Pensions Regulator takes reports from scheme members. You can report a concern online, or contact it by phone, email or post if you cannot report online. Concerns it handles include an employer not complying with its pensions duties and missing contributions to the scheme²⁵.

For complaints, The Pensions Ombudsman can help if you have a complaint about your pension scheme²⁵. The guide to The Pensions Ombudsman and complaining about a pension explains the process. If your complaint is about a provider, platform or fund manager rather than a scheme, the route is different: see complaining about a pension provider.

If an FSCS claim is needed, the service is free, and in most circumstances customers will not need to make a claim because FSCS works with the failed firm, the regulator and the insolvency practitioner²⁶. Before claiming, FSCS asks customers to check its eligibility rules, which set out who can claim and for what²⁷.