In their continuing battle to make the winding up of pension schemes fairer, the Government has just released a set of draft regulations. These should come into effect early next year.
The report does make welcome changes but could go a lot further in order to be completely fair to everyone within company pension schemes.
Currently, if a company pension scheme is not funded properly it will not be able to pay pensions to all of the people it should be in the future. This usually means that the pension scheme will be ˜wound up" or closed down, rather than the employer making up the deficit.
When a pension scheme is closed down, there is a strict priority order regarding which people that were members of the scheme get their benefits first. Those people that no longer work for the company but have not yet retired are generally the worst off. People already in receipt of their pension are generally better off.
Our View
Hopefully this will be the last set of draft regulations on the subject and action will start to be taken. With the poor financial state of many occupational (company) pension schemes, there are so many people badly affected when they are closed down (or wound up). These are the people that have worked for the company but then left for other employment.
The Government does understand this problem and they are now trying to ensure that the money and assets left in a pension scheme being wound up are shared out fairly between pensioners and those not yet retired.
To do this, the Government will still give priority to existing pensioners but instead of guaranteeing them inflationary increases in retirement, the money that would have been used to do that will be given to those people not yet retired.
We believe that people with "frozen" or previous company pension scheme benefits will now have significantly more protection, should the pension scheme be wound up.