What happens to my pension funds if my employer goes bust?

Thomas Cook is the latest big employer to collapse, and when companies go into administration many workers panic about their pension funds.

There is an industry body which protects people’s pensions, it is called the Pensions Regulator.

But certain pensions are better than others when it comes to protecting against company failure.

Which type of pension do you have?

There are two main types of workplace pension.

The ‘classic’ pension plan which most people had in the past, was to simply pay a part of your salary into it, and then get a portion of your salary paid during your retirement.

However, in recent years many companies have changed the way their pension schemes work.

Advantages and disadvantages

Many people now essentially pay into a savings account, and the company tops this up with contributions.

The disadvantage of this type of scheme is that it can be less certain how much you will be left with each year, as you will have a finite figure to last you.

But there is a major advantage, which is that whatever happens to the company, that money is yours.

The impact of collapse

The first sort of pension is paid from a pot of money which belongs to the company, so it could in theory be affected by any collapse.

There have been high profile examples of companies whose pension funds having shortfalls in recent years.

These include BHS, Carillion and Woolworths.

But what happens when there isn’t enough money in the pension funds to pay former employees’ pensions, and there is no longer a company in existence to top up?

Will you be protected?

This is the situation facing thousands of Thomas Cook employees who are on that first type of pension, as the company is estimated to have a £500 million pension shortfall.

And this is where the pensions regulator steps in.

Unfortunately, some people may be a little bit poorer in retirement, as the fund only promises to pay those who are still of working age 90% of their promised pensions, falling to 50% for bigger pension plans.

Contingency planning

When planning your pension, it’s important to ensure not only that you get the best return on your investment but that you could live on the ‘worst case scenario’ should something happen to your pension.

At Amethyst we can help you with cash flow modelling to make sure that you have adequate provision in place, and that you can have the retirement you want.

So, don’t sit worrying about what you would do if the worst happens, get in touch and sure up your retirement today.