Pension protection fund explained
High in everybody’s news feed in the last few days is the relatively surprising collapse of Britain’s second-biggest construction company – Carillion.
For many people that are currently in employment with some of the UK’s largest companies day to day work is generally something that is assumed as a given – It is only when something like this happens out of the blue that it brings home just how delicate our working and financial lives can be at times.
The ongoing job roles of the approximately 20,000 British-based employees are under huge threat, but what of their other hard earned benefits? Well luckily their pension rights should largely be preserved, thanks to the Pension Protection Fund (PPF), a private scheme funded by a levy on member companies.
When a firm with a salary-linked pension scheme goes to the wall without enough assets to carry on paying retirees, the PPF steps in. Those already in retirement get their pensions met in full, although future increases may be limited, while those who have yet to reach retirement age receive 90% of their benefits, up to a cap of around £35,000 (€39,500) a year.
The role of the PPF is to protect millions of people throughout the United Kingdom who belong to similar defined benefit pension schemes. If their employers go bust, and their pension schemes cannot afford to meet their liabilities and pension promises, the PPF will compensate the employees for their lost benefits. Tens of thousands of people are already in receipt of compensation from the PPF and hundreds of thousands more will do be in the future. The PPF is a public corporation, set up by the Pensions Act 2004, and is run by an independent Board.
This kind of collapse has huge knock on effects on both the wider markets as well as the multitude of small firms supplying services to the ‘Big Boys’.
Conservative MP Craig Mackinlay warned of a “domino effect” with subcontractors further down the supply chain that have already been waiting for up to six months for payments, may now receive nothing at all for the work they carried out.
Transfer values for Defined Benefit pensions are currently very high, due to a quirk of low interest rates. This could mean a higher transfer value might offset some of the risk you will be taking on if you chose to transfer your benefits.
Should I transfer? Am I in the best scheme for me? Is my scheme underfunded? There are many questions that need to be asked and Pennick Blackwell are happy to assess your personal situation and scheme position and if required walk you through all the potential pitfalls and options available to you.