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June 25, 2013 11:05 pm
Long-serving workers who lose large chunks of their pensions when their employers become insolvent are set for a boost after the pensions minister unveiled rules on compensation paid by the Pension Protection Fund.
Under existing rules for the PPF – the industry-funded lifeboat for underfunded schemes of insolvent employers – workers are guaranteed a proportion of their promised pension up to a cap, which rises annually.
This is currently £34,867.04, equating to £31,380.34 because each member can only receive 90 per cent of the promised sum. Those who retire before the age of 65 are subject to further reductions, and workers whose benefits were accrued before April 1997 lose their entitlement to inflation-linked annual increases.
However, under rules unveiled on Tuesday by Steve Webb, the pensions minister, the cap is to be lifted by 3 per cent for each year of service over 20 years.
This means, for example, that an employee who had been a member of a pension scheme for 40 years and accrued £50,000 annually would see their compensation increase from £31,380.34 to £45,000, according to the Department for Work and Pensions.
The CBI, the employers’ body, opposed the change, pointing out that insurance premiums were paid by industry rather than taxpayers and already amounted to more than £600m per year.
Neil Carberry, CBI director for employment and skills, said the increase would come as a “bitter blow” to industry: “The fund is paid for by business, not the government. At a cost of over £600m a year, it is already more than double the original plan, and the levy is likely to rise again this year. An even greater levy will hold back business investment and growth.”
But the pensions department said the additional cost of raising the cap was modest, at £10m annually.
The cap has only affected a small number of workers – fewer than 1 per cent of those whose benefits are being paid by the PPF – but has led to swingeing reductions in entitlement for long-serving workers who paid into pension schemes for decades.
The higher limit will apply to about 160 retirees over the age of 65 who are in the PPF and a group who have not yet reached retirement age.
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