The thought of “losing” your pension when circumstances are outside of your control can be very scary. However, it might not be as bad as you think!
The government has a number of procedures and regulations in place to ensure that, in the worst-case scenario (your company goes bust), your pension should be protected. Most of this protection goes up to 100% of the value too.
In this piece, we will look to alleviate your concerns and explain what your options are.
What happens if the company I work for goes bust?
This will vary depending on the type of pension you were enrolled in; a defined contribution or defined benefit pension.
A defined contribution pension is the most common type of pension. Your retirement income is dependent on how much money you have contributed to it, and the performance of those investments. So the more money you have contributed, the bigger your pension should be upon retirement. Most modern workplace and personal pensions are defined contribution.
A defined benefit pension (also known as a “final salary” pension) is a type of workplace pension that pays you an income based on your salary and the number of years you have worked for that employer.
So, what if I have a defined contribution pension?
With this type of pension being managed by a pension provider (not your employer), you should be fine if your employer goes under. You will however lose out on any future contributions that the employer should have made. In this situation, it would be best to contact the provider to see what your options are, as you wouldn’t now be paying into this through your employer.
So, what if I have a defined benefit pension?
If a company does go into financial trouble, your money will usually remain untouched
With a defined benefit pension, it is your employer’s responsibility to make sure there is enough money in the scheme to pay you upon retirement. If your employer does go into financial trouble, your money will usually remain untouched, as company pensions are kept separate to the rest of their assets.
If your employer doesn’t have the funds to pay your pension, you will still have protection from the Pension Protection Fund (PPF) which was set up by the government for exactly for this reason. However, you won’t always be eligible to claim the full value of your pension.
The Pension Protection Fund will compensate you for 100% of your pension if you have reached the scheme’s retirement age. If you haven’t reached the scheme’s retirement age, you will only be entitled to 90%. You may also be able to claim separate compensation from the Fraud Compensation Fund (which is part of the Pension Protection Fund), if there are signs of negligence in the company’s management of the pension.
What happens if my pension provider goes bust?
Your pension provider should be regulated by the Financial Conduct Authority (FCA). If they are, you will be due compensation up to 100% of the fund value from the Financial Services Compensation Scheme (FSCS). You can check that your provider is regulated by the Financial Conduct Authority (FCA) by visiting their register page.
What happens if I don’t know who my pension provider is?
Figures vary, but the general estimate is that there is over 1.6 million “lost” pension pots
Not to worry, we hear this all the time. Figures vary, but the general estimate is that there is over 1.6 million “lost” pension pots, worth over £19 billion. This is equivalent to £13,000 per pot!
The government has a free pension tracing service, which is designed to help you look up any old pensions you have some record of. This won’t reclaim your money for you, or give you any specific information about your policy. However, it can help to guide you in the right direction as to who would be best to contact next.
The more information you can provide about your employer or provider the better. Some of the information that can be beneficial is:
- Any current or previous company names
- A current or previous company address
- The dates that you were employed there
- Any old payslips you may have
Hopefully this has reduced any concerns you may have about your pension should your company or pension provider go bust. It isn’t necessarily all doom and gloom, and although the process may be a slow one and require some admin work, in most cases, you should be able to recoup some, if not all, of your money.