But I failed at this a while ago when writing a guide to compensation from the Pension Protection Fund (“PPF”). I incorrectly stated:
If the benefit didn’t revalue under the Scheme Rules, it doesn’t under PPF rules.
If a scheme goes into the PPF, the structure of its benefits may change. The Scheme’s Rules are superseded by the PPF’s rules (set out in legislation rather than in a Trust Deed & Rules). PPF rules will, however, often depend on what the Scheme Rules said.
In my inset sentence above, I was just saying that a benefit which was not due revaluation in deferment before (sometimes called a “fixed pension”) should not revalue under PPF rules either. It would remain a fixed pension until retirement (and most likely beyond).
My source for this was the PPF’s Guidance in respect of revaluation of Pension Protection Fund Compensation:
Where, immediately before the assessment date, the admissible rules do not provide for any revaluation of the benefits payable to or in respect of any member, then revaluation will not be applied under PPF legislation.
Hopefully, you agree that their sentence and mine look like they are saying the same thing, only mine is more succinct (precisely my intention). But I might have looked again and asked myself why it specifies ‘to or in respect of any member’. Or even better, I might have checked the legislation itself, because it was later brought to my attention that my guidance was incorrect.
I then checked other PPF guidance, Guidance for Undertaking the s.179 Valuation, and where it covers the same topic, there is an additional clarifying note:
Where the scheme does not provide revaluation of benefits for any member in deferment and the relevant time falls after 1 April 2009, then the PPF compensation will not receive any revaluation. Note that if any single member receives revaluation on any part of their pension then this paragraph does not apply.
Fixed pensions had been overlooked when the PPF rules were first written (act in haste, repent at leisure). The Department for Work and Pensions (“DWP”) made amending regulations effective from 1 April 2009 with the following stated intention:
The PPF currently provides revaluation of compensation even where this was not provided by the admissible rules of the scheme. This might result in scheme members receiving a (possibly substantially) higher rate of compensation than the rate of pension which they would have received under the rules of the scheme. The scheme will also be required to pay a higher risk-based levy as its valuation would have to take account of the PPF's revaluation. Regulation 3 therefore removes the requirement to revalue PPF compensation in cases where the rules of a scheme that transferred into the Pension Protection Fund did not provide for this.
This seems clear enough and supports my original interpretation. There is no indication (or reason to suppose) that Regulation 3 applies only to schemes where no single member receives revaluation (as specified by that clarifying note). It seems the DWP made an error in the final draft though, because Regulation 3 actually removes the requirement for PPF revaluation only:
Where, immediately before the assessment date, the admissible rules of the scheme do not provide for any revaluation of the benefits payable to or in respect of any member [our emphasis]
It seems that the qualification “to or in respect of any member” accidentally restricts the application of this provision. And I suspect schemes where no single member receives revaluation are quite rare, almost entirely defeating the point.
Interestingly, in their response to the consultation on these regulations, the DWP said:
Respondents welcomed the draft Regulations about the provision of revaluation by the PPF. The majority of respondents did, however, comment that the provisions were unclear about the circumstances in which the PPF would not provide revaluation.
The Government has therefore clarified the circumstances in which the PPF will not provide revaluation. Regulation 3 introduces provisions which modify Schedule 7 to the Pensions Act 2004, so that the PPF will not provide revaluation for scheme members, where immediately before the assessment date, the admissible rules of the scheme do not provide for any revaluation of the benefits payable to or in respect of any member. The PPF will therefore continue to provide revaluation in all other cases that are currently allowed by Schedule 7.
The original draft was indeed unclear. The revised, final regulations were clearer, but do not achieve what they set out to achieve.
It might be relevant that the DWP undertook an eight-week consultation on the 2009 amendments, rather than the recommended 12 weeks recommended by the Code of Practice on Consultation. Act in haste, repent at leisure.
There is a broader lesson, beyond drafting guidance or legislation. Pension legislation is rarely understood fully on first read. A few extra words can completely alter the meaning (and add £1,000s to a PPF levy). Double-check your interpretation before proceeding, or you might regret your hasty interpretation for a long time.
Gareth Stears, Pensions Technical Consultant, Aries
