How is Compensation Calculated?

Transcription

1 Pension Protection Fund Factsheet Protecting your future How is Compensation Calculated? Version 2 / August 2007

2 This factsheet is for guidance only. It is not a definitive statement of law or entitlement. Information in the factsheet is based upon current understanding of the legislation in force at the time of writing. This factsheet is not tailored to take into account any specific individual circumstances. You should contact the Pension Protection Fund if you wish to discuss any query you may have about how any of the issues raised in this factsheet may apply to your own personal circumstances. Our contact details are set out at the end of this factsheet. The Pension Protection Fund cannot provide advice on your personal or financial circumstances. This factsheet is a basic guide to the calculation of Pension Protection Fund Compensation. Terms in italics are explained in the Glossary at the back of this document. 1

3 How much Compensation will I get? The Pension Protection Fund pays two levels of Compensation. The level of Compensation which you qualify for will depend on your status at the start of the Assessment Period for your Former Pension Scheme. Your Compensation will be at 100% level of Compensation as at assessment date, if at the start of the Assessment Period you: Had reached the scheme s Normal Pension Age; or Were receiving a survivors pension; or Were receiving a pension on the grounds of ill-health. Your Compensation will be at 90% level of Compensation as at assessment date and subject to the Compensation Cap, if at the start of the Assessment Period you: How is Compensation calculated? Compensation is calculated based on your pension entitlement earned under your Former Pension Scheme and based on your age and status as at the start of the Assessment Period. Your Statement of Deferred Compensation or Annual Compensation Statement will provide further information about your Compensation. If you have any queries about how your Statement of Deferred Compensation or Annual Compensation Statement has been calculated, please contact us using the details set out at the end of this factsheet. Examples of how Compensation is calculated can be found at index/scheme-member.htm were below the scheme s Normal Pension Age; and you were not receiving a survivors pension or pension on the grounds of ill-health. Please note that in extreme circumstances the levels of Compensation could be reduced by the Secretary of State on the recommendation of the Pension Protection Fund. 2

4 Will my Compensation increase in payment? Any part of your Compensation derived from pensionable service on or after 6 April 1997 will be increased each year in line with the increase in the Retail Prices Index subject to a maximum of 2.5%. Any part of your Compensation derived from pension service before 6 April 1997 will not increase in payment. Your Payment Confirmation Certificate will set out what part of your Compensation is derived from pensionable service on or after 6 April 1997 and what part from pensionable service before 6 April Increases to Compensation Payments will take effect from 1 January each year. We will notify you of the amount of any increase to your Compensation Payment and a payslip will be issued if your payments increase by more than 1. Please note in extreme circumstances Compensation and the level of revaluation could be reduced by the Pension Protection Fund if circumstances require it. Will my Compensation increase in deferment? If your Compensation is not in payment, it will be increased in deferment each year in line with the Retail Prices Index, subject to a maximum of 5%, from the Assessment Date until the day before your Compensation Payments begin. What is the Compensation Cap? The Compensation Cap is a statutory limit on the amount of Compensation which may be paid. The Compensation Cap is adjusted according to your age when Compensation Payments begin. For the financial year running from April 2006 the Compensation Cap is set at 28, at age 65. The factors by which the Compensation Cap is adjusted for age other than 65 are available on the Pension Protection Fund website at compensation_cap_factors.htm The Compensation Cap applies to all members who had not reached Normal Pension Age at the start of the Assessment Period. The Compensation Cap will be applied when your Compensation is calculated to be put into payment. Your Statement of Deferred Compensation will indicate whether the Compensation Cap has been exceeded when your Compensation Payments commence and your Compensation has been restricted by the Compensation Cap. Examples of calculations applying the Compensation Cap can be found on the Pension Protection Fund website at management_ _appendix.pdf Please note in extreme circumstances Compensation and the level of revaluation could be reduced by the Pension Protection Fund if circumstances require it. Compensation for Pension Credit Compensation Members does not increase in deferment. 3

5 How do I know if the Compensation Cap will affect me? Your Statement of Deferred Compensation will indicate whether your Compensation has been restricted by the Compensation Cap. How will I know what my Compensation will be when I reach Normal Pension Age? As a Deferred Compensation Member you will receive an annual compensation forecast known as an Annual Compensation Statement until your Compensation Payments begin. You may also request a further Compensation forecast at any time. Following my divorce, part of my pension under my Former Pension Scheme became payable to my Ex-Spouse, does this affect my Compensation? Yes. More information about how your Compensation is affected in these circumstances is set out in our factsheet Compensation and Divorce, which is available on the members section of our website at or by contacting us directly using the details set out below. I m a Pension Credit Compensation Member, how is my Compensation calculated? Broadly your Compensation will be calculated in the same manner as a Deferred Compensation Member s. However your Compensation will not be revalued or otherwise increase in deferment for the period until your Normal Benefit Age. 4

6 I am a Mixed Compensation Member, how is my Compensation calculated? As a Mixed Compensation Member, you will already be receiving part of your Compensation, whilst part of it will still be deferred, as different tranches of your Compensation have different Normal Pension Ages. When you reach Normal Pension Age for each tranche of Compensation, the Pension Protection Fund is required to perform a number of calculations to measure: I am a Mixed Compensation Member, can I take the part of my Compensation which is not in payment before Normal Pension Age? You may be able to take early payment of your remaining tranches that are not already in payment. Please refer to our factsheet Early Payment of Compensation in respect of the tranches that are not already in payment. Whether your Compensation has exceeded the Compensation Cap; and Whether it is required to be restricted; and What proportion of your Compensation is derived from pensionable service on or after 6 April 1997 and what part from pensionable service before 6 April Your Statement of Mixed Compensation, which was included in your Welcome Pack, provides further information about your Compensation and how it may be affected when you reach Normal Pension Age for further tranches of Compensation. 5

7 Glossary Admissible rules Annual Compensation Statement Assessment Period Board of the Pension Protection Fund Compensation Compensation Cap Compensation Payments Deferred Compensation Member Rules of the Former Pension Scheme, after the application of a statutory test. Annual statement provided to Deferred Compensation Members with a forecast of what Compensation will be payable at Normal Pension Age and to Mixed Compensation Members in respect of tranches of Compensation which are not in payment. The time during which the Pension Protection Fund Assessment Team assesses if the Pension Protection Fund is required to assume responsibility for a scheme. This is a statutory body established under the provisions of the Pensions Act The Pension Protection Fund became operational on 6 April The sum payable to an individual in accordance with the Pension Act 2004 instead of the scheme benefits following assumption of responsibility by the Pension Protection Fund. Statutory limit on annual Compensation. Payments of Compensation made by the Board. A member who is not in receipt of Compensation. Normal Pension Age Payment Confirmation Certificate Pension Credit Compensation Members Pension Protection Fund Pension Sharing Order Retail Prices Index Statement of Compensation Entitlement Statement of Deferred Compensation The age under the Admissible Rules of the Former Pension Scheme, at which the member was entitled to payment of his/her pension without actuarial adjustment, disregarding any special provision for early payment. This is the document sent to In Payment Members with the Welcome Pack letter. A member in the Former Pension Scheme whose membership derives from the implementation of a Pension Sharing Order on divorce. The statutory fund administered by the Board of the Pension Protection Fund. An order made by the Court as part of a financial settlement on divorce in accordance with the Welfare Reform and Pensions Act The general index of retail prices (for all items) published by the Office for National Statistics. A statement that details your entitlement to Compensation from the Pension Protection Fund. This is the document sent to Deferred Compensation Members with the Welcome Pack letters. Former Pension Scheme Mixed Compensation Member Normal Benefit Age The member s pension scheme for which the Pension Protection Fund assumed responsibility. A member who has part of his Compensation in payment and part of his Compensation not in payment. The age under the Admissible Rules of the Former Pension Scheme, at which the member was entitled to payment of his/her pension without actuarial adjustment, disregarding any special provision for early payment. Statement of Mixed Compensation Welcome Pack A statement that details your Compensation that is already in payment and your entitlement to your Compensation that is not in payment when the Pension Protection Fund assumed responsibility for your Former Pension Scheme. A personal information pack detailing the Compensation payable to the member when the Pension Protection Fund has assumed responsibility. 6

8 Further information If you have any queries or would like further information about calculating Compensation, please contact us using the details set out below. If you would like a Braille, large print or audio tape version of this booklet, you can request this by phone or . The contact details are set out below. Contacting the Pension Protection Fund You can contact us by , telephone or fax using the details set out below. members@ppfonline.org.uk Tel: Fax: You can also write to us at: Operations Team Pension Protection Fund PO Box 128 Mowden Hall Darlington DL1 9DA