Posted on: 1st Feb 2019
If your employer goes out of business, what happens to yoursavings? This week, we shall discuss what will happen depending on the type of pension that you have and the actions you should take.
Should I worry about my workplace pension?
You may have recently seen a number of news stories about employers going out of business. This leaves current and retired employees in a predicament about where they stand with their pension. However, getting your facts right is the first thing you should do before you allow yourself to worry and take any action. The actions you should take depend on whether you have a defined benefit pension scheme of a defined contribution scheme.
If you have a defined benefit scheme
These schemes are also referred to as final salary schemes, or even sometimes known as career-average schemed. The amount you receive when you retire is calculated based on how long you have been a member of the scheme, as well as your salary.
This type of scheme is protected by the Pension Protection Fund. The Protection Fund pays compensation to scheme members in the event of employers becoming insolvent and the scheme not having enough funds to pay the benefits.
The compensation you receive may not be the full amount. The level of protection you receive depends on the following:
- If you are already drawing benefits
- Whether you are still contributing to the scheme or not
- If you are a deferred member who has left the scheme, but you have still built up an entitlement.
If you have a defined contribution scheme
These schemes are also referred to as money-purchase schemes. The amounts that you and your employer pay into the scheme are invested. This will build up a pension pot which you use for yourincome. The amount you receive depends on the following:
- The charges you pay
- How much has been invested
- How well your performs
This type of scheme is not covered by the Pension Protection Fund. However, your savings are invested and held by a pension provider, such as an insurance company. As long as the provider you are with is authorised by the UK’s regulator, the Financial Conduct Authority, your savings will remain protected by the Financial Services Compensation Scheme (FSCS).
These insurers have a large amount of surplus capital which should help prevent them going bust. However, in the event of a worst-case scenario, the FSCS would pay 100 per cent of the claim with no upper limit.
The important distinction is that your employer has no access to your pension fund and it is held by a separate company, so should your employer go out of business, this should not have any impact on your pension policy or the amount currently held within your policy.
Seeking more Help
It is always important that you contact your employer for more information if you have any concerns regarding your pension scheme. However, if you feel like you should speak to an independent third party, or you would simply like more information, you can get in touch with the Money Advice Service. Alternatively, if you would like ongoing financial advice, then get in touch with Haven IFA today. We are here to ensure that you are as prepared as can be for living a comfortable and enjoyable retirement.