Both Toys R Us and Maplin are the latest in a long line of high profile UK stores to go into administration. Their collapse will see 5700 redundancies between them, and many of the employees no doubt wondering what will happen to their pensions. If I get made redundant, is my company pension safe?
What will happen with your pension will depend on what kind of pension you have.
Defined Benefit (Final Salary Pension)
A Defined Benefit Pension Scheme is sometimes known as a Final Salary Pension. Rather than pay directly into a pension pot, the pension provider will promise to give you a certain amount each year when you retire, based on your earning history and length of service.
With this type of scheme, it becomes a problem if the company you work for collapses as they often don’t have enough funds to cover their pension liabilities.
However, the Pension Protection Fund (PPF) was set up to cover such eventualities. If the company you work for goes bust and doesn’t have enough assets to meet their pension obligations, the PPF will step in to fund the compensation.
The assessment period can take up to two years to complete. Those members of collapsed schemes that have already retired won’t see any changes to their payments. However, if you are yet to retire, you can expect to receive up to 90 percent of your scheme.
Defined Contribution Scheme
This is a pension fund in which both you and your employer pay into on a regular basis. The sum is based on a percentage of your earnings and is normally deducted from your salary before it is taxed.
A Defined Contribution Scheme pension is administered by a third party, so you would still have access to it in the normal way if the company you work for collapses.
Andrew Colyer-Worsell, Senior Pension adviser from Fix My Pension, said “If you have recently been made redundant it’s important to get advice from an Independent Pensions Adviser as soon as possible.”