Is My Pension Safe If My Employer Goes into Administration? A Guide for Employees

The news that your employer has gone into administration is incredibly stressful, and your first thought is likely, “What about my pension?” The safety of your pension depends on the type of scheme you are in: a money purchase scheme or a salary related scheme.

We’ll walk you through the key differences and what happens in each scenario.

What Is a Money Purchase (Defined Contribution) Scheme?

In a money purchase scheme, the money put aside for your pension is based on your and your employer’s pre-agreed contributions. The final value of your pension depends on the performance of the investments it’s held in, not on your salary.

The scheme itself is not directly affected by your employer going into administration, as it is legally independent of the company’s financial status. You will only lose out on any unpaid contributions that were not paid before the company went into administration. If you have these unpaid employer contributions, you can claim them from the National Insurance Fund.

What Is a Salary Related (Defined Benefit) Scheme?

A salary related scheme is a less common type of pension where the value is defined by your final salary, age at retirement, and length of service. If your employer goes into administration and the pension fund cannot meet its future liabilities, the Pension Protection Fund (PPF) is designed to step in and ensure your pension is still paid.

The Pension Protection Fund (PPF)

The PPF was established in 2005 to provide compensation to eligible members of salary related pension schemes in the event of an employer’s insolvency.

Once a company’s liquidation has been announced, the following process begins:

• A four-week assessment begins to determine the pension scheme’s eligibility for the PPF.
• If eligible, it can take up to two years to determine how much compensation will be paid to members.
• From the start of the assessment period, those who have already retired will receive their full pension.
• Employees not at retirement age will receive 90% of their benefits, up to a maximum compensation level set by the fund.

It is important to note that once the assessment phase has begun, you must stay in your current pension scheme and not transfer any money to a new one.

What If the Pension Provider Goes Bust?

In the unlikely event that your pension provider (not your employer) goes bust, you can claim compensation from the Financial Services Compensation Scheme (FSCS).

While the situation is stressful, pension schemes are well-protected by law and government funds. Understanding the type of pension scheme you have and knowing that a legal framework is in place can provide some peace of mind during this difficult time.