A big worry for many retirement savers is what will happen to their company pensions if their employer goes bust.
Turbulent economic events stirred up by Brexit and a change of tack for America policy after the election of Donald Trump have many worrying about their financial future.
Concerns over pensions held by big employers such as Tata Steel and British Home Stores have also brought the debate about transferring out of final salary pensions to the fore.
A common question is will all the savings in a workplace pension go down the drain if the employer goes to the wall.
Luckily, if a company goes bust, a government ‘lifeboat’ scheme is ready to come to the rescue of retirement savings.
Safeguarding pensions
The Pension Protection Fund (PPF) has the job of taking on company pensions if the employer ceases to trade.
The fund looks after around 5,800 pension funds with a total deficit of £224 billion.
The bad news is although the retirement savings are still accessible, the benefits paid vary between employees already drawing a pension and those who are not.
Those already retired will carry on receiving their benefits at the current rate.
Anyone awaiting their first pension payment is likely to see their benefits cut by 10% to cover PPF management costs.
Index linking is limited to the rise in the retail price index capped at 2.5% a year – and this is only applied to contributions made after April 1997.
Who should transfer?
The amount new pensioners receive is also based on their age as the PPF pays a maximum amount.
For retirement savers thinking of jumping ship into a personal pension, as soon as the workplace pension enters a PPF assessment period, no further transfers out are allowed.
For workers who want to transfer their savings, it’s important to act quickly.
For most savers with small pension funds of up to £10,000, sticking with the PPF is probably the best option.
Savers with bigger pension pots are likely to lose the most if a scheme goes into protection as the PPF does not cover pots larger than £35,000 for retirement savers at 65 years old.
In all cases, anyone considering a transfer should take professional advice.
