If your employer goes out of business, what happens to your pension savings? Here we explain the situation depending on the type of pension you have and give you a number to call for more help.
There are lots of bad news stories around at the moment about employers going out of business, leaving current and retired employees unsure about where they stand with their pension.
However, it’s good to get the facts first before you start worrying and taking any action.
The situation depends on whether you have a defined benefit pension scheme or a defined contribution scheme.
These schemes are also known as final salary schemes or career-average schemes.
The amount you receive when you retire is worked out according to how long you’re a member of the scheme and your salary.
This type of scheme is protected by the Pension Protection Fund.
This pays compensation to scheme members if employers become insolvent and the scheme doesn’t have enough funds to pay their benefits.
The compensation might not be the full amount and the level of protection depends on whether you’re:
These schemes are also known as money-purchase schemes.
The amounts you and your employer pay into the scheme are invested to build up a pension pot which you use to draw a retirement income.
How much you get out depends on:
This type of scheme isn’t covered by the Pension Protection Fund, but your savings are invested and held by a pension provider (such as an insurance company).
As long as the provider is authorised by the Financial Conduct Authority (the UK’s regulator), your savings are protected by the Financial Services Compensation Scheme (FSCS)
These insurers have huge amounts of surplus capital which should help prevent them going bust.
However, if the worst did happen, the FSCS would pay 100% of the claim with no upper limit.
You should always contact your employer if you have concerns about your pension scheme.
However, if you would also like to speak to an independent third party, or you just need more information, you can call our free Money Advice Line:
Our Money Advisers will transfer you to the Pensions Advisory Service who can answer any questions you have.
Alternatively, you can call the Pension Advisory Service direct on 0300 123 1047.
This article is provided by the Money Advice Service.