The Pension Protection Fund (PPF) has confirmed that its compensation cap at age 65 will remain at its current level of £41,461.07 per annum from 1 April.

The pensions lifeboat said this was in response to the UK annual average wage inflation having decreased over the year, while also confirming that the compensation cap for ages other than 65 would also not change.

The Department for Work and Pensions made the decision not to increase the cap after average earnings dropped by 1 per cent between April 2019 and April 2020.

Detailing how other calculations factored in to the decision, PPF said: “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.”

The caps, which only affect around 0.5 per cent of PPF members, only impact members’ compensation if they have not yet retired.

Meanwhile, PPF also confirmed that the Financial Assistance Scheme (FAS) cap would increase from £36,717 per annum to £36,901 per annum, stating that the increase reflected inflation and would apply to members retiring on or after 1 April.

Explaining why this cap was rising, PPF said it operated under different regulations to FAS, with the lifeboat’s regulations requiring the compensation cap to be linked to increases in UK average earnings, whereas the FAS regulations required its cap to be linked to increases in inflation.

In June 2020, the High Court ruled that PPF's compensation cap for those below normal pension age was unlawful discrimination on the grounds of age, with the judge stating that the differential treatment between those above pension age and those below it was “not objectively justifiable”.

However, PPF and DWP launched appeals against aspects of the High Court judgment in August, with the former continuing to apply the cap until the appeals process concludes.

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