Advice on pensions following recent high-profile company failures

By Emily Jacobs, Director, Richard Jacobs Pensions and Trustee Services.

Recent high-profile company collapses, including Thomas Cook and Carillion, have far reaching consequences.

In the case of Thomas Cook, much talk has quite rightly been about ensuring holidaymakers are not left stranded overseas.

But what about the consequences for workers and retired workers’ pensions?

Unfortunately, there is no single easy answer. The consequences vary depending on if an employee is a part of a money purchase scheme or a salary related scheme.

A money purchase scheme (also known as a defined contribution pension scheme) is one where the contribution  builds up a pot of money.

The money purchase scheme is the standard at most companies now but many older workers will be familiar with a salary related pension, where the pension is based on your final, or career average salary, together with factors such as length of service.

If an employee is part of a money purchase scheme, pension pots will only be affected if the employer has failed to pay their pre-agreed contributions which the liquidator will be looking to reimburse.

The benefits already built up in a money purchase benefit scheme are not affected by company liquidation.  This is because it is your individual pot.

All pension contributions are put in an investment portfolio and pension levels are dependent on how well the fund performs, therefore, it is important to review your annual statement.

With a salary related scheme, there have been instances where the pension fund cannot meet its current and future liabilities. However, the Pension Protection Fund should give workers’ peace of mind.

The Pension Protection Fund was instigated in 2005 following cases where people had lost their pensions when companies had gone bust.

If a company goes into liquidation, the PPF says all workers should be assessed to determine eligibility to receive benefits from the fund.

Retired workers are deemed eligible for a full pension under the scheme with immediate affect but there are limits to the yearly amount that can be paid out. For those aged 60, this is capped at £31,439.18. For those aged 65, the limit is £36,401.19 (subject to increases in line with inflation).

The position is different for people who were still in work at the time of liquidation, as they are eligible for 90% of maximum benefits.

Before retirement, an annual forecast of compensation payments will be given and the PPF will contact workers six months ahead of retirement to tell them how to access a compensation pension.

There’s one more crucial point to consider; once the assessment phase begins about whether the scheme will be moved into the PPF, future beneficiaries must stay in their current pension scheme and not transfer any money over to a new one.

If you need further advice please contact emily@jacobs-pensions.co.uk. Website: www.jacobs-pensions.co.uk.