There are many businesses that are struggling with increased costs of materials, goods, services, wage demands and inflation in general. During the coming recession, many businesses will fail.
We are tackling the question that sadly some of our clients will ask over the coming years:
“What happens to my defined benefit company pension if my employer goes ‘bust’ i.e., insolvent and is being liquidated i.e., closed down and wound up?”
Your employer is usually required to offer a workplace pension unless there are no qualifying employees. There are two types of pensions and we have produced three videos this week to help you understand what happens to your pension if your employer fails:
1. ER Folds DC Scheme Video 1 – Defined Contribution Pension Schemes
Video 2 – this video – Defined Benefit Schemes
3. Er Folds DB Deficit Video 3 – Defined Benefit Schemes when the scheme is in deficit and there is not enough money in the business to cover the liabilities.
Defined Benefit Schemes
These are pension schemes usually with a guaranteed annuity income, lump sum, and inflation increases built into them such as:
Your guaranteed pension income and lump sum is usually linked to:
Compensation and Protection
A defined benefit pension scheme is sponsored and guaranteed by your employer. If you employer becomes insolvent, your defined benefits are the responsibility of your employer to cover your accrued pension benefits to date.
Unlike a defined contribution scheme, where the pension fund is with a separate firm, a defined benefit is usually in trust with the employer responsible and if they fail, your scheme fails too. It is up to your employer to cover any liabilities. If there is not enough money in the pension fund i.e., it is in deficit and if there is not enough money in the business to pay the liabilities, the Pension Protection Fund (PPF) will take over and protect you.
Priority on Wind-Up Defined Benefit Scheme
Who comes first?
Pension Protection Fund (PPF) Compensation
If, there is not enough money in the business to cover pension liabilities, in priority order above, the PPF https://www.ppf.co.uk/ will take over and compensate you as follows:
If you are already passed the Normal Retirement Age (NRA) of the scheme e.g., age 65
If you are below the Normal Retirement Age (NRA) of the scheme