Pension Protection Fund (PPF) Rules

ttellahzab

Hi All,

I need help.

I have a ppf account as a result of my company transferring a failing final salary scheme to ppf. The actual value of this account is relatively small compared to my other pension accounts (through different work places). I started the process the other week of obtaining the 25% lump sum from this account (as I'm >55) to help reduce my remaining mortgage value. I found out that in relativity 'i can' take the whole value of the account out in one go (other pensions will provide for me). This appealed to me because it would go a long way to paying off my remaining small mortgage (<£50k).

I wanted to peruse taking out the whole value until i found a rule which 'appears' to not let me take out the whole sum and close this account. That rule is as follows:

"You can do this if the value of this pension plus any other pension benefits you may have is £30,000 or less. This value is equal to a pension in payment of £1,500 per annum, and includes all benefits, whether in payment or not. The £30,000 limit also includes:"

I have taken this to mean that if the total of all of my other pensions is £30k or greater (which it is) then I cannot take out the whole value of the ppf.

I have communicated with ppf and they say they cannot give me a reason for this rule as its set by HMRC. So, I contact HMRC for a 'simple' explanation for this, what i see, unfair rule. There first response was a load of mumbo jumbo that I simply cannot and frankly do not want to understand. I need to know the reason for this rule in simple terms. I quizzed them further for a 'simple' explanation and they quite frankly refuse to give it to me and have just passed the buck onto someone they call the "non-statutory clearances team". All I want is a simple explanation. I do not want to be passed to here there and everywhere to get that explanation. HMRC themselves have basically said we have guided me where to go for guidance and they will no longer respond to any further email correspondence. I have not followed up this "non-statutory clearances team" route yet but again it seems like yet another load of complexity to get a simple answer!

I am speaking with a private financial advisor about my other pensions but they have basically said they cannot give guidance on the ppf as its a government run scheme.

I hope i have may my situation clear enough. Can anyone in this realm explain this unfair rule?

Regards,
Barry

Dazed_and_C0nfused

PPF usually (always?) deal with defined benefit pensions.

DB pensions are not a pot of money for you to do what you want with.

The rules you are interested are commonly referred to as trivial commutation.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063500

hyubh

ttellahzab said:

Hi All,

I need help.

I have a ppf account as a result of my company transferring a failing final salary scheme to ppf. The actual value of this account is relatively small compared to my other pension accounts (through different work places). I started the process the other week of obtaining the 25% lump sum from this account (as I'm >55) to help reduce my remaining mortgage value. I found out that in relativity 'i can' take the whole value of the account out in one go (other pensions will provide for me). This appealed to me because it would go a long way to paying off my remaining small mortgage (<£50k).

I wanted to peruse taking out the whole value until i found a rule which 'appears' to not let me take out the whole sum and close this account. That rule is as follows:

"You can do this if the value of this pension plus any other pension benefits you may have is £30,000 or less. This value is equal to a pension in payment of £1,500 per annum, and includes all benefits, whether in payment or not. The £30,000 limit also includes:"

I have taken this to mean that if the total of all of my other pensions is £30k or greater (which it is) then I cannot take out the whole value of the ppf.

I have communicated with ppf and they say they cannot give me a reason for this rule as its set by HMRC. So, I contact HMRC for a 'simple' explanation for this, what i see, unfair rule. There first response was a load of mumbo jumbo that I simply cannot and frankly do not want to understand. I need to know the reason for this rule in simple terms. I quizzed them further for a 'simple' explanation and they quite frankly refuse to give it to me and have just passed the buck onto someone they call the "non-statutory clearances team". All I want is a simple explanation. I do not want to be passed to here there and everywhere to get that explanation. HMRC themselves have basically said we have guided me where to go for guidance and they will no longer respond to any further email correspondence. I have not followed up this "non-statutory clearances team" route yet but again it seems like yet another load of complexity to get a simple answer!

I am speaking with a private financial advisor about my other pensions but they have basically said they cannot give guidance on the ppf as its a government run scheme.

I hope i have may my situation clear enough. Can anyone in this realm explain this unfair rule?

Regards,
Barry

What you have hit is the limit for 'trivial commutation'. It isn't specific to PPF compensation, it applies to pensions in general.

ttellahzab

Dazed_and_C0nfused said:

PPF usually (always?) deal with defined benefit pensions.

DB pensions are not a pot of money for you to do what you want with.

The rules you are interested are commonly referred to as trivial commutation.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063500

Hi,

Yes I believe you are right about defined benefit rather than final salary as i mention. I will double check.

Dazed_and_C0nfused

ttellahzab said:

Dazed_and_C0nfused said:

PPF usually (always?) deal with defined benefit pensions.

DB pensions are not a pot of money for you to do what you want with.

The rules you are interested are commonly referred to as trivial commutation.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063500

Hi,

Yes I believe you are right about defined benefit rather than final salary as i mention. I will double check.

You may well be able to put the pension into payment now and receive whatever the scheme pays as a TFLS and the monthly pension as well.

As this was a DB pension you are unlikely to be able to take the TFLS without starting the pension at the same time.

If you are taking the pension before the schemes normal pension age then you can expect it to be reduced, maybe 5% for each year you take it early.  This isn't a penalty, it's a reduction to reflect the fact that you are asking for the pension to be paid for a longer period than normal.

Marcon

ttellahzab said:

Dazed_and_C0nfused said:

PPF usually (always?) deal with defined benefit pensions.

DB pensions are not a pot of money for you to do what you want with.

The rules you are interested are commonly referred to as trivial commutation.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063500

Hi,

Yes I believe you are right about defined benefit rather than final salary as i mention. I will double check.

Final salary is one form of defined benefit. Only DB schemes are eligible for entry to the PPF.

ttellahzab said:

Hi All,

I need help.

I have a ppf account as a result of my company transferring a failing final salary scheme to ppf. The actual value of this account is relatively small compared to my other pension accounts (through different work places). I started the process the other week of obtaining the 25% lump sum from this account (as I'm >55) to help reduce my remaining mortgage value. I found out that in relativity 'i can' take the whole value of the account out in one go (other pensions will provide for me). This appealed to me because it would go a long way to paying off my remaining small mortgage (<£50k).

I wanted to peruse taking out the whole value until i found a rule which 'appears' to not let me take out the whole sum and close this account. That rule is as follows:

"You can do this if the value of this pension plus any other pension benefits you may have is £30,000 or less. This value is equal to a pension in payment of £1,500 per annum, and includes all benefits, whether in payment or not. The £30,000 limit also includes:"

I have taken this to mean that if the total of all of my other pensions is £30k or greater (which it is) then I cannot take out the whole value of the ppf.

I have communicated with ppf and they say they cannot give me a reason for this rule as its set by HMRC. So, I contact HMRC for a 'simple' explanation for this, what i see, unfair rule. There first response was a load of mumbo jumbo that I simply cannot and frankly do not want to understand. I need to know the reason for this rule in simple terms. I quizzed them further for a 'simple' explanation and they quite frankly refuse to give it to me and have just passed the buck onto someone they call the "non-statutory clearances team". All I want is a simple explanation. I do not want to be passed to here there and everywhere to get that explanation. HMRC themselves have basically said we have guided me where to go for guidance and they will no longer respond to any further email correspondence. I have not followed up this "non-statutory clearances team" route yet but again it seems like yet another load of complexity to get a simple answer!

I am speaking with a private financial advisor about my other pensions but they have basically said they cannot give guidance on the ppf as its a government run scheme.

I hope i have may my situation clear enough. Can anyone in this realm explain this unfair rule?

Regards,
Barry

There's nothing to explain; it's quite simply an HMRC rule.

Your original defined benefit scheme would not have allowed you to trivially commute if you had total (non-state) pension benefits of more than £30K, and there is nothing illogical in the same requirement being applied to the PPF. 

sandsy

The trivial commutation limit is set out in legislation. More information on why it was introduced and how it has changed over time can be found at:

https://researchbriefings.files.parliament.uk/documents/SN02181/SN02181.pdf

ttellahzab

Hi @Marcon,

With respect to "There's nothing to explain; it's quite simply an HMRC rule.". I understand the need for a rule but i want to know why this rule exists even if its typical to all pension providers. At this time i simply think its unfair.

Keep_pedalling

The rule is there to prevent people cashing in a life time income and ending up in poverty and reliant of benefits in their old age, or  loosing their entire pension after transferring it to scammers. The £30k limit it rather arbitrary but had to be set somewhere. 

Linton

Also I guess the PPF does not have the money to fully finance the pensions of the members of the insolvent schemes it manages. It relies on the subscriptions of solvent schemes to make up the shortfall over time. Therefore it cannot pay out large lump sums as its core assets are being used to pay pensioners now. It has not yet received the money that will be used to pay their pensions in the future.

OldScientist

Linton said:

Also I guess the PPF does not have the money to fully finance the pensions of the members of the insolvent schemes it manages. It relies on the subscriptions of solvent schemes to make up the shortfall over time. Therefore it cannot pay out large lump sums as its core assets are being used to pay pensioners now. It has not yet received the money that will be used to pay their pensions in the future.

The PPF reduce the liabilities of the pensions that come into their scheme by introducing an inflation cap of 2.5% on pensions that previously had higher caps and reducing the income of pensions in payment taken before normal pension age by (if memory serves) 10%. They also reduce costs by having an economy of scale that small defunct pensions do not.

If transfers out are fairly priced they should reduce the liabilities of the PPF by the same amount as the payout.

To the OP: It is not clear whether you other pensions are also DB or the more common DC. However, for the retiree even having a small stream of lifetime income from a DB pension (albeit inflation capped in the PPF) is a useful addition to the state pension since, compared to drawdown from DC pensions, it has little market risk. This is the reason for the rule.