UK Coal workers and retirees have had their pensions rescued by the biggest bail out on record as Britain’s last coal mining company collapsed.
The Pension Protection Fund has taken on the likely shortfall that is likely to add up to around £500 million.
The previous biggest pension fund rescue was the £333 million Nortel scheme, which was taken over when the company went into administration in 2009.
The move shows that no UK defined benefit or workplace pension scheme is safe, and that employees and pensioners have to rely on the Pension Protection Fund to take up the slack to make sure their retirement savings do not go down the drain.
The Pension Protection Fund does not underwrite and agree to pay full benefits under any scheme that is taken over. In many cases, only partial benefits are paid.
Compensation payments
According to the latest figures from the Pension Protection Fund, nearly 600 schemes with 175,000 members are safeguarded by the fund.
Seven schemes with almost 7,000 members transferred in to the scheme in May 2013.
Compensation paid to date exceeds £860 million, which averages £3,340 annual payments per member.
The Pension Protection Fund is financed by a levy charged to all Britain’s remaining final salary pension funds and taking over the pension assets of failed companies.
Around £20 billion is invested by the fund to support rescued pensions.
A spokesman explained that the fund has the resources to pay all current obligations and to consider taking on other pension schemes as well.
Rescue plan
Anyone approaching retirement cannot expect to receive their full benefit entitlement under the UK Coal scheme. Instead, they will be paid up to 90% of the amount up to a maximum £31, 380.
Pensioners already drawing on the fund should be unaffected, unless they retired early, in which case their payments will be cut.
Pension Protection Fund executive director Martin Clarke, said: “The fund has worked with UK Coal to come up with an innovative proposal that not only saved 2,000 jobs but protects the pensions of 7,000 members in the scheme as well.
“It was obvious from the start that the pension would have to come to us, regardless of the future of UK Coal, as the deficit was so big.
“The proposal also calls for the company to make regular payments into the fund, which will give a better return for members than just letting the company collapse into administration, where it would probably have closed for good.”
Overseas Pension Transfers
Transferring UK pensions to a QROPS has been increasing year by year since its inception in 2006. With the recent gloomy British pension news it is likely that individuals coming to retirement will look at moving overseas and taking what is left of their pension with them. If you are looking to transfer your UK pension to a QROPS you must seek qualified financial advice, to be put in touch with a financial adviser, please contact us for a referral
