Pension Protection Fund (PPF) – The case study of Mr S

Mr S had appealed the decision of the Board of the PPF to reduce the pension he had been in receipt of for 15 years.

Mr S was a member of the Foremans Limited Pension and Life Assurance Scheme (the Scheme). The Scheme commenced winding up in August 2001. Mr S was a pensioner member of the Scheme at that time, as he had taken early retirement in March 2001, at the age of 55.

In September 2009, the Scheme managers wrote to Mr S informing him that an application had been made for the Scheme to join the Financial Assistance Scheme (FAS). The letter informed Mr S that as his pension commenced before the Scheme wound up, his benefits would remain in payment at the current level.

In November 2013, Mr S was informed that the Scheme had been transferred to the FAS and that he would now receive a monthly payment from the FAS instead of from the Scheme.

In November 2016, the FAS wrote to Mr S and informed him that it had received revised data from the Scheme’s administrators and, as a consequence, it had recalculated his FAS payment. The FAS explained that Mr S’ payments were going to be reduced to bring them in line with the Financial Assistance Scheme Regulations 2005 (SI2005/1986) (the FAS Regulations) and also to recover the overpayment that had arisen.

Mr S appealed the FAS’ decision regarding the overpayment. He was unhappy that after being in receipt of the pension for over 15 years, it was going to be reduced to recover the overpayment. Following further correspondence, the FAS exercised its discretion and agreed to waive the balance of the overpayment and Mr S’ payments were increased to 90% of his full benefit entitlement in accordance with the FAS Regulations.

Mr S remained unhappy. He said that because he had taken early retirement at age 55, an actuarial reduction had already been applied to his benefits. His FAS payment had been calculated based on the Financial Assistance Scheme (Miscellaneous Amendments) Regulations 2010 (SI2010/1149) (the FAS 2010 Regulations) and the Scheme’s under-funding which was the situation when the Scheme went into wind-up, which was much later than when he started receiving his benefits. The FAS had not only reduced his pension by 10% to bring it in line with the FAS Regulations allowing it to pay 90% of the calculated entitlement, it had applied the 90% to the reduced pension that it had calculated based on the underfunding when the Scheme commenced winding-up in 2001.

Mr S’ appeal was considered by an Adjudicator. The Adjudicator said that the basic calculation of an annual FAS payment is based upon the member’s expected pension at normal retirement age. In Mr S’ case, this is the pension he would have received from the Scheme at his normal retirement age; not the reduced pension paid from 2001. The reduction to his FAS payment recognises that Mr S had already been receiving a pension from the Scheme before his normal retirement age. It takes the total amount he received and converts this into a reduction to the annual FAS payment going forward.

If this adjustment is not made, Mr S would receive the same FAS payment as someone who had not retired early. In effect, he would then receive more, by way of Scheme payments and FAS payments, than an equivalent member who had not retired early.

The Adjudicator said that, in accordance with the FAS Regulations, once the Scheme is transferred to the FAS the Board’s actuary must value Mr S’ asset share to determine what his FAS annual payments should be and concluded that the FAS Regulations enable the FAS to do so.

The Deputy PPF Ombudsman did not uphold the appeal as she found that Mr S’ FAS payments had been correctly calculated in accordance with the FAS Regulations. The Ombudsman explained that the FAS 2010 Regulations are an amendment of the FAS Regulations. Therefore, the FAS Regulations (as amended) are still the governing legislation of the FAS.  

Related determinations

• Financial Assistance Scheme (PPFO-19624)