Is my pension safe?
Whether it’s a pension through your employer or one you’ve set up yourself, your money is usually safe. Pensions in the UK are protected by strict rules, industry safeguards, and government-backed schemes, giving you peace of mind about your financial security in retirement. It’s important to know your pension is safe so you can feel confident about your financial future.
Strict rules for protecting your pension
All UK pensions are regulated and so they must follow strict rules and controls. That means that there are rules around where and how your money is invested as well as how often you are given information about the performance of your pension. The regulators have the power to inspect pension providers and apply penalties if the rules aren’t being followed.
There are two main regulators.
- The Pensions Regulator will make sure that all employers put their staff into a pension scheme and pay money into it. They are also responsible for protecting people’s savings in workplace pensions which aren’t personal pensions or group personal pensions (GPPs). GPPs are a type of workplace pension set up by your employer. It’s a collection of individual pension plans and each employee has a plan.
- Personal pensions and GPPs are regulated by the Financial Conduct Authority.
Extra protections if things go wrong
Your pension is protected even if your provider or employer goes out of business.
- The Financial Services Compensation Scheme (FSCS) protects defined contribution pensions. These are pensions where you build up a pot of money that you can live on when you retire.
- The Pension Protection Fund (PPF) protects private sector defined benefit pensions. These are pensions where the amount you get at retirement is linked to your salary and how long you’ve been in the pension scheme for.
- The UK government guarantees public sector pension schemes which are defined benefit pensions set up by the UK government. Because these schemes are underwritten by the government, the benefits are guaranteed to be paid.
How do the extra protections work?
Here’s what happens to the two main types of pensions if your provider or employer goes bust:
Defined contribution pensions
With a defined contribution pension, you and your employer (if it’s a workplace pension) pay into your pension savings. Then, it’s up to you to decide what to do with that money.
If your employer goes bust:
Your pension savings are separate from your employer’s finances. This means your pension is safe and continues to be managed by the pension provider.
If your pension provider goes bust:
- The Financial Services Compensation Scheme (FSCS) usually covers 100% of the value of your workplace pension.
- If you have a personal pension or a self-invested personal pension (SIPP) and are only invested in the provider’s funds, you’re normally covered up to 100% of the value of your pension.
- If you have a SIPP and are invested in other companies’ funds, you’re covered up to £85,000. That’s because even if the pension provider went bust, you would still have investments in other companies’ funds.
- You might also be covered if a company your pension was invested in fails (up to £85,000).
Defined benefit pensions
A defined benefit pension can also be known as a final salary or career average pension. There is a promise to pay a retirement income for all of your life, and if you have one, your husband, wife or civil partner might receive a pension on your death too. The amount you receive will be based on how long you’ve worked and your salary.
Most private sector defined benefit pensions are closed (meaning that you can’t join them) but you might have one from the past. Public sector pensions are defined benefit pensions but, as explained above, these are guaranteed by the government.
What happens if there isn’t enough money in the pension scheme?
Sometimes, defined benefit pension schemes don’t have enough money to cover the pensions and costs. This can happen if people live longer than expected or if the pension fund investments haven’t performed well. In these cases, the pension scheme’s trustees (who oversee the pension scheme on behalf of its members) and employer must agree on a recovery plan - a strategy to address the shortfall over time. If everything goes to plan, there’ll be enough money to pay all the pensions.
If your employer goes bust:
If your employer becomes insolvent and can’t pay into the pension scheme, the Pension Protection Fund or PPF steps in to protect people with private sector defined benefit pensions. The PPF assesses whether your scheme qualifies, and if it does, the compensation you receive depends on your age at the time your employer became insolvent and the amount of pension you’re being paid or promised. You will be able to get:
- 100% of the pension payment if you’ve reached the scheme’s pension age. This also includes pensions for widows, widowers, civil partners and children, or if you started receiving your pension early due to ill health
- 90% of the pension you were due to receive if you haven’t retired yet.
Worried about your pension?
For more information about your pension contact:
- Your employer
- Your defined contribution pension provider or defined benefit pension scheme
- The government-backed Money Helper website
- The Pension Regulator
- The Financial Services Compensation Scheme
