The thought of losing your pension when circumstances are out of your control can be scary. However, the government has a number of procedures and regulations in place to ensure that, in the worst case scenario, your pension is protected. Read on to find out what your options are, and how much of your retirement savings you could get back, depending on the type of pension you have.
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, where your retirement income is dependent on how much money you contribute to it, and the performance of those investments. Most modern workplace and personal pensions are defined contribution pensions.
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 work for that employer.
So, what if I have a defined contribution pension...?
Defined contribution pensions are managed by a pension provider (not your employer), so your pension should be fine if your employer goes bust. You will, however, lose out on any future contributions that your employer would have made. In this situation, you should contact your pension provider directly to see what your options are.
So, what if I have a defined benefit pension...?
With a defined benefit pension, it’s your employer’s responsibility to make sure there’s enough money in the scheme to pay your pension when you reach retirement. If a company you work for experiences financial trouble, your money will usually remain untouched, as a company’s workplace pension scheme is usually kept separate to the rest of its assets. If your employer doesn’t have the funds to pay your pension, you should have protection from the Pension Protection Fund (PPF), which was set up by the government for exactly this reason.
The PPF will compensate you for 100% of your pension if you’ve already reached the scheme’s retirement age at the time your employer goes bust. If you haven’t yet reached the scheme’s retirement age, you’ll only be entitled to 90% compensation, to a set limit. For 2019/20 the limit is £40,020 for a 65-year-old. The compensation cap is reviewed annually from 1 April, to ensure it aligns with the increase in average earnings in the UK in the last tax year.
You may also be able to claim separate compensation from the Fraud Compensation Fund (which is part of the PPF), if there are signs of negligence in your employer’s management of the pension.
What happens if my pension provider or money manager goes bust?
If your pension provider goes bust, the compensation you’re entitled to will be determined by the type of pension you have, and whether your provider’s regulated by the Financial Conduct Authority (FCA).
For a defined contribution pension, it will depend on where your pension’s saved. If your pension qualifies as a ‘contract of long-term insurance’ it will benefit from the 100% coverage offeredcovered by the Financial Services Compensation Scheme (FSCS) for accepted claims against the money manager. You’ll also be eligible for the same level of cover for annuities purchased from pension providers regulated by the FCA.
If your SIPP provider goes bust, you’ll only be eligible for compensation up to £85,000 for claims against them. For other pensions, it will vary depending on the underlying investment. You can see the full list of the protection you’re entitled to from the FSCS here, and if you have any questions about your pension you should contact your provider.
All PensionBee pensions are structured as long-term insurance contracts and therefore benefit from 100% protection should the money manager become insolvent. This means that if something happens to one of our money managers, who are BlackRock, State Street Global Advisors, Legal & General and HSBC, your pension will be protected by the FSCS up to 100%. We’ll also pursue any compensation on behalf of our customers. For more information on the applicable FSCS protection, read our dedicated Pensions Explained Centre article on the topic.
What happens if I don’t know who my pension provider is?
If you don’t remember who your pension provider is, don’t worry, we hear this all the time. Figures vary, but the general estimate is that there are over 1.6 million “lost” pension pots, worth over £19 billion. This is equivalent to £13,000 per pot!
Figures vary, but the general estimate is that there is over 1.6 million “lost” pension pots
The government has a free pension tracing service, which is designed to help you look up any old pensions you have some record of. While this won’t reclaim your money for you, or give you specific information about your policy, it can help guide you in the right direction so you know who to contact.
The more information you can provide about your employer or pension provider the better. Some of the information that can be beneficial is:
- Any current or previous employer names
- A current or previous address for your employer
- The dates that you were employed
- Any old payslips you may have
Although the process of reclaiming money may be a slow one and require some admin work, it’s possible to get your retirement savings back on track should your employer or pension provider go bust.