What if your Company Pension Scheme is Closed or Wound Up?

Article Written By: BSM

Putting money aside for retirement is more important than ever at the moment, as our population ages and the provision of the state pension really doesn't go very far at all. For most people, pensions seem like a long way off and something to think about at a later date. Up until recently, prolific company pension schemes meant that ticking a box when starting a new job was enough to put your mind at ease and forget about saving for retirement.

But as these schemes have begun to disappear from companies all across the country, before you know it, your retirement is around the corner and you can find yourself with very little to get you through retirement.

There has been a worrying recent trend of companies winding up or closing their pension schemes, and this is now soon to be true in the private sector too. If you've been affected by any of these things, or suspect you are about to, it is important to take the time to understand the implications and take action. After all, time is money.

Closed or Frozen Schemes

Regulations allow for a scheme to be closed, or frozen if it's proven that future payments can't be met by the employer. If you find yourself in this situation with your employer, don't panic - the ways in which these schemes are closed are designed to protect your rights to your retirement fund.

- A closed scheme is one that no longer accepts new members, but existing members can continue to contribute and receive benefits accordingly upon retirement.

- If you join a new firm with a closed scheme, make sure you ask what options may be available to you as there may be an alternative, for example a GPPI (Group Personal Pension Plan). Alternatively, a stakeholder pension may be an option. With either of these two options, the employer won't make any contributions themselves.

- If the scheme is frozen, no existing or new employee can pay into it any longer. Existing members will not lose the funds they have already paid into the scheme, but as they can no longer pay in any further funds, they need to look elsewhere for another scheme on their own. In this case, you should be able to withdraw the funds in that company scheme and invest them into a new scheme, a form of pension transfer.

When a Scheme is Wound up

In the case of a merger or acquisition of your company by another, or the company goes into liquidation, a pension scheme can be wound up. In the case of bankruptcy, the funds are secured by the administrators and cannot be accessed by the creditors to settle the company's debts. In this situation you will be able to withdraw the funds only in order to start a new pension, either privately or through a new employer.

However, if your employer remains solvent but decides it can't afford to support the scheme any longer, it will have to make up any shortfall before the scheme can be wound up. In the case of a merger, the new company will be obliged to offer an equivalent replacement scheme.

Protecting your Future by Acting Now

If your company's scheme is being frozen, closed or wound up, it is important to take action as soon as possible, not least because it means you can continue to contribute to your scheme and maximise your potential retirement pot. Any periods where no contributions are being made into your pension, even brief, may well affect your pension income upon retirement. Whilst the law means that your funds are protected, the responsibility is with you to make sure that your pension fund is maximised.

About the Author

John T Hughes - Independent Financial Advisor.co.uk, a site specialising in finding you expert advice on retirement products such as pensions.

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