What happens to my pension if my employer goes bust?

If a company becomes insolvent, a specialist accountant called an 'insolvency practitioner' takes over its affairs. They will appoint an independent trustee to take over the pension fund from the trustees (in a trust-based pension scheme).

If you are in a 'money purchase' scheme, your pension pot should not be affected (unless the employer has failed to pay contributions over to the provider).

if you are in a salary-related scheme and if, as is very likely, the pension fund cannot meet its current and future liabilities, the new Pensions Protection Fund (PFF) will step in and ensure that pensions can still be paid.

The PPF came about after a long union campaign to provide protection for employees who were losing their pension through no fault of their own when their employer went bust. It is a kind of insurance scheme. All occupational pension schemes that pay a salary-related pension have to pay a levy. In return, their members are protected if they go bust.

If you are already receiving a pension, the PPF will carry on paying you the same pension that you currently receive. The part of your pension that you built up after April 1997 will increase in future years in line with prices up to a maximum of 2.5%. This may be less than the increases you would have got from your old scheme.

If you are yet to receive your pension, the PPF will pay up to 90% of what you would have got if your pension scheme had not gone bust, subject to a cap.

But winding up a pensions scheme is a difficult and time-consuming process.

You can find out more about the Pensions Protection Fund.

Note: This content is provided as general background information and should not be taken as legal advice or financial advice for your particular situation. Make sure to get individual advice on your case from your union, a source on our free help page or an independent financial advisor before taking any action.

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