how secure is my pension?

james3333

on tv this morning i saw a poor bloke ( just one of thousands) that had paid into his works pension scheme ( all his working life ) and was due to get 25k per year.
however, the company have gone bust and he will now recieve NOTHING.
The government will not be compensating him ( or the rest of the workers) and apparently the government are being taken to the european court of law.

i was under the impression that all company pensions were now secure, due to a law ( not sure what law) but i thought the government guaranteed 90% of your cash back if your compay goes bust?

i work for a catalogue company, they pay 8.7% of my pay into the scheme and its a 'salary sacrifice' scheme.
but how safe is this scheme?
what happens if the company goes bust ? ( and this is a very real possibility with how the catalogue industry is at the moment)

any help appretiated.

james.

dunstonh

Its a bit of a joke really.

There was the story of an IFA a couple of years back that took someone out of the occupational scheme due to a fear that it could collapse. The client was happy with that and had been given all the risk warnings and understood the lot. In a third party review of that transaction, they decided it was bad advice and it resulted in the IFA having to pay compensation. In the meantime the occupational scheme collapsed and all those in it lost the bulk of the pension. The couple that had taken it out were not affected. They thought the IFA was great and the advice was good. The FOS didnt. Despite the scheme collapsing, they felt the advice was still wrong.

This view that exists that Occ Schemes are safe as houses is inaccurate. The vast majority will not have a problem but a few will. The fact that these cases make the media is an indication of how uncommon it is. If it was frequent, then the media wouldnt cover it.

Advisers have their hands tied a lot of the time because the regulatory position is that the person has to be better off financially if they transfer out. Someone leaving a sinking scheme is not likely to be better off if that scheme survives although they would be if it collapsed.

EdInvestor

List of failed schemes

Since the Pension Protection Fund has been set up, this problem should not reoccur - but you never know.Caveat emptor.

https://www.thepensionsregulator.gov.uk

cheerfulcat

Edinvestor wrote:

Since the Pension Protection Fund has been set up, this problem should not reoccur

Read Dr. Ros Altmann's open letter to the Secretary of State for Work and Pensions, and see if you still think that.

james3333 wrote:

i was under the impression that all company pensions were now secure, due to a law ( not sure what law) but i thought the government guaranteed 90% of your cash back if your compay goes bust?

Not quite; see letter above, also Dr. Altmanns own website. There is a program on ITV tonight as well about pensions which may be of interest.

As far as your company pension itself is concerned, it may or it may not be safe; there are no guarantees. It's not a good idea in any case to be relying on one source of income in retirement so it might be worth looking at saving in a stocks and shares ISA as well as the company pension.

BTW there can be tax advantages to contributing to your company pension fund, especially where the company is making contributions as well, so balance out the risks and the advantages.

james3333

if i contact the company pension handlers, will they be able to give me a straight answer?
or is it not worth my time trying to track them down?
are we saying ALL pensions are unsafe, is it the 'norm' to be contributing to a pension scheme as an 'unsecure' investment orr gamble if you like?

dunstonh

are we saying ALL pensions are unsafe, is it the 'norm' to be contributing to a pension scheme as an 'unsecure' investment orr gamble if you like?

If its money purchase, there is no financial liability to the company. So, if the employer goes under, the scheme is not touched. This is why you see so many moving to money purchase.

furndire

EdInvestor wrote:

List of failed schemes

https://www.thepensionsregulator.gov.uk

B***** H*** , and the government wonder why people aren't investing in pensions.

dunstonh

furndire wrote:

B***** H*** , and the government wonder why people aren't investing in pensions.

If people were "investing" in pensions then there wouldnt be a problem. A money purchase pension scheme is no different to holding unit trusts, investment bonds or ISAs.

The problem is the media has hooked into the final salary scheme failures and given the impression to the public that its all pensions. In reality it is just a small number.

cheerfulcat

dunstonh wrote:

The problem is the media has hooked into the final salary scheme failures and given the impression to the public that its all pensions. In reality it is just a small number.

And there's Equitable Life, of course...the thing is, it may only be a small number of schemes now, but there are already several hundred thousand people affected. And many company pension funds have large holes in them...I think that it is a good thing that the media are giving people a fright about their income in retirement; perhaps then they will finally do something about it, instead of frittering cash away on electronic gewgaws.

Debt_Free_Chick

cheerfulcat wrote:

Read Dr. Ros Altmann's open letter to the Secretary of State for Work and Pensions, and see if you still think that.

But that letter isn't about the PPF - it's about the FAS for those schemes that fall outside the PPF, as the employer went bust before the PPF came into play.

Is the link correct, or did you mean a different letter?

Debt_Free_Chick

james3333 wrote:

on tv this morning i saw a poor bloke ( just one of thousands) that had paid into his works pension scheme ( all his working life ) and was due to get 25k per year.
however, the company have gone bust and he will now recieve NOTHING.
The government will not be compensating him ( or the rest of the workers) and apparently the government are being taken to the european court of law.

Back to your questions!

i was under the impression that all company pensions were now secure, due to a law ( not sure what law) but i thought the government guaranteed 90% of your cash back if your compay goes bust?

This relates to the type of pension scheme where the company has promised a certain amount of pension - typically, a defined-benefit or final salary pension scheme. In this case, the Pension Protection Fund (PPF) will top up any shortfall in your pension, to 90% of the promised pension (with a cap on the total amount you receive).

i work for a catalogue company, they pay 8.7% of my pay into the scheme and its a 'salary sacrifice' scheme.
but how safe is this scheme?
what happens if the company goes bust ? ( and this is a very real possibility with how the catalogue industry is at the moment)

It doesn't sound as though you have a final salary pension. It sounds as though the only promise your employer has made is the amount they will pay into the pension scheme. In this case, your concern is that the company pays in what it should, when it should. You then have "investment" considerations as the money is invested to provide a fund for your pension - but that's not an issue for this question.

Provided the money is paid promptly, you are not affected by the ongoing media frenzy about the security of pension schemes. That's not to say you can simply forget about your pension - just that the issues surrounding "security" do not relate to the scheme that you appear to be in.