# If my employer goes bust is my company pension protected by law?



## Yellow Belly (7 Jan 2009)

If I work for a large company which goes bust saying that they have no money- is my pension protected by law?

My employer manages my pension not a traditional fund manager or insurance company.

Has this ever happened before?
Are there any ways which I can protect myself?


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## ClubMan (7 Jan 2009)

What sort of pension is it (defined benefit or defined contribution) and who are the trustees. Pensions should be ring fenced from company matters but in practice this may not always be so straightforward (e.g. having to chase up former company directors or other officers who were also trustees of the scheme or, worse still, companies (illegally) dipping into pension funds). How exactly does your employer manage the pension?


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## Don_08 (7 Jan 2009)

Penson funds will be held in trust by the trustees on behalf of the members.  The assets will be totally seperate to the employer.  There are a number of employers who manage the pension fund assets - this will have little or no bearing on the security of the assets ( more to do with performance of the fund).

Defined Contribution

The employer goes belly up - your pension will be whatever assets are held for you.  You can take that pot of money and transfer to another pension arrangement ( with some limits)

Defined Benefit

Slightly more complicated.  Frstly any AVCs you hold will be yours ( unless there is a complicated arrangement) For main scheme benefits, the pension fund assets are held in respect of the liabilities of all pension scheme members.  There is no debt on the employer in respect of any deficit of assets compared to liabilities ( unlike UK).  The pension scheme will more than likely go into windup. Frst call on the assets will be the expenses of wind-up, then the pensions of current pensioners will be purchased by way of annuities from an insurance company including full allowance for pension increases.  Then actives and deferreds will be given a tranfser value in respect of their accrued benefits.  Any remaining money wll be divided up as per the trust deed and rules -could be extra for actives or returned to employer.

The problem at the moment is that assets have fallen so much that some schemes do not even have enough money to cover the pensioners, or only a small amount for actives and deferreds.  Not a problem unless a company goes belly up and winds up scheme without throwing extra money in.  So in theory a 55 year old who retired last year could have the full value of his pension secured and a 64 year old with 40 years service due to retire in the summer could be left with nothing.

This is the reason the Society of Actuaries have been callng on the government to change the priority rules.  Most unfair to me seems to be that full pension increases for existing pensioners have priorty over any active liability  (again the UK has different legislaton on this)


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## Bronte (8 Jan 2009)

Don_08 said:


> Defined Benefit
> 
> The pension scheme will more than likely go into windup. Frst call on the assets will be the expenses of wind-up, then the pensions of current pensioners will be purchased by way of annuities from an insurance company including full allowance for pension increases.


  For the current pensioners what guarantee is there that there is enough money to purchase the annuities - assuming the underlying assets have fallen massively in value?


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## StevieC (8 Jan 2009)

Bronte said:


> For the current pensioners what guarantee is there that there is enough money to purchase the annuities - assuming the underlying assets have fallen massively in value?


 
It depends, if the company purchased an annuity for the pensioner at time of retirement then their pension is secure.

If their pension is been paid on a pay as you go arrangement from the main fund assets then current pensioners will most likely have first rights to any assets left in the fund/s but this would be clarified by the scheme rules or by contacting the Trustee's. If there is enough assets to meet the cost of purchasing an annuity then they will be fine, if not its up to the Actuary involved in the windup of the scheme to decide the allocation of assets to current pensioners and who gets what.


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## Don_08 (8 Jan 2009)

If there is not enough assets after expenses taken up to buy out the full value of pensions, then all the pensions will be reduced accordingly.  Not really up to the actuaries, though we would probably end up doing the calcs.  If its going to cost €100million to buy out all the pensioners and there is only €80m left at the time, then the pensioners would get 80% of their pension.    Has not happened yet, but there may be a bit of playroom with regards pension increases etc.  ( Ie they could get their full pension and 2.5% increases as opposed to 3.0% pension increases on a reduced pension)


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## rheinie (8 Jan 2009)

Can AVCs in the scheme remain invested or do they have to be withdrawn ,can they be reinvested , and into what type of schemes are there available for this scenario.


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## Don_08 (8 Jan 2009)

When the scheme winds up it will not exist anymore so AVCs will need to be transferred to another pension - either an individual pension or a new company AVC arrangement.   You may be able to take a pension from them and any scheme pension if you are over 50.


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## rheinie (8 Jan 2009)

Thanks for that info.Can you clarify have they to be withdrawn from scheme and are they liable for tax then, before you reinvest them even if it is with the same pension provider.


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## Don_08 (8 Jan 2009)

No tax will be due - you will just be transferring the AVCs to another pension product.


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## rheinie (8 Jan 2009)

Thanks for that I know this is probably a silly question but is there ANY way they can be reinvested to avoid this tax liability.


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## rheinie (8 Jan 2009)

OOps did I misread your reply.Did you mean they will not taxable or NO tax will be payable on them.


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## Homer (8 Jan 2009)

There will be no tax liability on the transfer of AVCs at the time the transfer takes place.

When you eventually use the AVCs to provide benefits, some of the proceeds will be taxable depending on Revenue rules about tax free lump sums (which will depend upon your final salary and service with your employer and any retained lump sum benefits from previous pension arrangements).

Regards
Homer


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