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CPI – Consumer Prices Index 

The consumer price index (CPI) measures the average change in the price consumers pay for a basket of goods and services. The measure of inflation used by the PPF is CPI which is used to calculate members’ compensation. 

CVA – Company voluntary arrangement 

A company voluntary arrangement (CVA) is a procedure that allows a company to settle some or all of its debts by paying only a proportion of the amount it owes creditors. During CVA negotiations, the PPF takes on a statutory role on behalf of any DB pension scheme and our approach will depend on what the CVA is trying to achieve. We consult with The Pensions Regulator (TPR) on all cases and as a creditor, we will vote in favour or against the proposals.

DB – Defined Benefit 

A defined benefit (DB) pension, also known as a final salary pension, is calculated on the number of years of service a member has worked with an employer and their earned salary. We protect members of eligible DB pension schemes when their employer becomes insolvent and may take responsibility for payments following the outcome of an assessment period. 

DC – Defined Contribution 

A defined contribution (DC) pension is generally built up with individuals and employer pension contributions, and investment returns and tax relief. The pot aims to increase over time until the member reaches retirement. 

FAS – Financial Assistance Scheme 

The Financial Assistance Scheme (FAS) was formed by the government in May 2004 and began operating in September 2005. The FAS provides financial assistance to members of defined benefit pension schemes who lost all or part of their pension following their scheme coming to an end between 1 January 1997 and 5 April 2005. We administer FAS on behalf of the government.

FCF – Fraud Compensation Fund             

The Fraud Compensation Fund (FCF) pays compensation to occupational pension schemes which have lost out financially due to dishonesty. In November 2020, the High Court clarified that members of occupational pensions schemes that were part of a scam were eligible to claim on the FCF. The FCF is funded by a general levy charged to all UK pension schemes – for 2021/22 this is set at 75p per member, and 30p for master trusts. We review the levy on an annual basis. It’s collected on our behalf by TPR.

Funding ratio 

The ratio of the PPF’s assets (net of investment liabilities) and the assets of schemes in assessment over the PPF’s non-investment liabilities and the liabilities of schemes in assessment.

Hybrid assets 

Investments which possess attributes of both liability hedging and growth assets. 

Insolvency risk 

The PPF’s insolvency risk partner, Dun & Bradstreet, assesses the likelihood of a scheme’s sponsoring employer becoming insolvent each month. An average is taken over the year and each scheme is placed in a levy band. 

PPF Levy 

The PPF has four sources of funding, one of which is the PPF levy. The levy enables us to protect millions of member of defined benefit pension schemes. Paid by all eligible schemes, it helps protect their members if its sponsoring employer becomes insolvent. Similar to an insurance premium, the amount of levy each scheme pays is primarily based on the risk of its sponsoring employer becoming insolvent. A small portion of the levy we collect is based on the size of the scheme too.  

Levy band

The levy band is the category of insolvency risk that determines a scheme’s levy rate. The PPF calculates the insolvency risk for a scheme’s sponsoring employer and this determines the levy band it is placed in.  

LDI – Liability-Driven Investment  

Liability driven investments (LDI), also known as liability hedging, is a strategy for investing in assets that go up or down in the same way as the value of a scheme’s liabilities. Scheme liabilities are the outgoings associated with running a scheme and paying members their future benefits. Our LDI strategy makes up 40 per cent of our investment portfolio and is a vital part of our approach to risk management because it insulates the Fund from the impact of changes to interest-rates and inflation, helping to ensure that we have enough money to pay all our members for as long as they need us. 

LTRM – Long Term Risk Model 

The LTRM is a model used by the PPF to understand the risks it faces and to measure its progress against its funding target.  The LTRM models a range of possible scenarios to project what the future might look like and considers factors including existing assets and liabilities, possible claims on the PPF and possible levy. The PPF uses the LTRM to estimate its probability of success. 

PPF Assessment

When an employer becomes insolvent, its DB pension scheme enters an assessment period where we assess if the scheme has sufficient funding to buy-out benefits with an insurer. If there’s insufficient funding, the scheme will transfer into the PPF. While in PPF assessment, we exercise creditor rights in restructuring and insolvency negotiations on behalf of the scheme and the trustees remain responsible for the day-to-day running of the scheme, including paying members their pension. 

PoS – Probability of Success 

The probability of success (PoS) is the principle measure we use to measure our progress towards achieving our funding objective which is to be self-sufficient by our funding horizon.

RAA – Regulated Apportionment Arrangement 

A regulated apportionment arrangement (RAA) is a process where an otherwise insolvent employer is able to detach itself from its DB pension liabilities. While each RAA is unique, this will usually result in the scheme transferring into the PPF.

Other scheme outcomes, although rare, could see schemes buy-out benefits with an insurer if it has sufficient assets to pay its members more than we do, and there has been situations where members have been offered the choice to transfer into a new scheme which offers benefits lower than those of the old scheme but higher than what we pay. Before any RAA is agreed, they must meet our published principles as well as criteria set out by The Pensions Regulator. 

RI – Responsible Investment 

RI is the consideration of financial and social investing. The PPF published its first RI report last year which set out its strategy for managing environmental, social and governance (ESG) in its investments. 

RPI – Retail Prices Index 

RPI is a measure of inflation which represents the change in the cost of a sample of retail goods and services. The PPF does not use RPI. 

Risk-based levy

The PPF calculates the levy in two parts and the risk-based levy is one of them. The risk-based levy considers the employer’s insolvency risk, the schemes underfunding risk and its investment risk. 

Scheme-based levy

The PPF calculates the levy in two parts and scheme-based levy is one of them. It is based on how large the scheme is. 

SIA – Schemes in Assessment 

When an employer becomes insolvent, its DB pension scheme enters an assessment period for a period of 18 to 24 months. During this time the scheme trustees remain responsible for the day-to-day running of the scheme including members’ payments. 


The Section 179 valuation (s179) valuation is set out in The Pensions Act 2004. It is designed to approximate the value an insurance company would need to be paid to take on a defined benefit (DB) pension scheme and pay its members benefits equivalent to those provided by the Pension Protection Fund (PPF). 

The methodologies used to derive the s179 assumptions are determined by the PPF, having consulted with insurance companies. They are published on the PPF website, and updated when necessary. These assumptions include the discount and inflation rates, as well as life expectancy and other demographic assumptions.

S179 valuations are used in PPF levy calculations, and the s179 measure is used in the PPF’s Purple Book and 7800 Index.

S75 or Buy-out basis 

This measure is used to approximate the premium insurance companies would charge to take on the full liabilities of a DB pension scheme. If a scheme was to be ‘bought-out’ by an insurance company, this is the amount that would need to be paid to the insurance company in order for it to take on the scheme and pay the members their promised benefits.

Insurance companies have a different regulatory regime to pension schemes which requires them to hold capital. Also, given that an insurance company would be unable to secure further funding for the scheme after it had been ‘bought out’ to meet any increases in the scheme’s liabilities and at the same time make a profit, this measure often places the highest value on the scheme’s liabilities. When a scheme’s sponsoring employer becomes insolvent, any creditor claims by the pension scheme, including those made by the PPF on its behalf, would be on this basis.

A “buy-in” is similar except the risk of any increases in the scheme’s liabilities remains with the scheme.