Occupational Pension Security

The potential risks that your occupational pension involves will depend on the type of occupational pension scheme to which you belong (see Occupational Pensions). It is a risk in every pension scheme that your employer, or another person with access to the pension funds, could steal money from the pension scheme. Depending on the amount stolen, this theft could have an impact on the amount of money available to pay members' pension benefits, and you may be left with less pension than you were initially promised. The second risk that faces members of occupational defined benefit schemes (see Defined Benefit Schemes) is that your employer may not be able to keep the promises made to you when you joined the scheme; if the company is in financial difficulties, or goes bankrupt, you may be unable to receive your pension. This may not be the fault of your employer, but your retirement income will suffer as a result. If you are a member of an occupational defined contribution scheme (see Defined Contribution Schemes), also known as a money purchase scheme, the total pension fund available when you retire will depend on the investment returns that your pension fund has earned. If your investments were not successful, perhaps because of an economic slump, your total pension fund may not be as valuable as you had initially hoped for; the annuity you are able to purchase may be lower as a result.

It is impossible to entirely protect your pension against risk. There are ways however in which you can reduce the risk of losing money. The chances that you will lose all your retirement savings are slim to none. In the worst case scenario you are guaranteed a minimum income by the government, but there are measures in place to compensate anyone who loses their money due to pension scheme negligence. If you are concerned about the security of your State Pension, see State Pension Security. For details of how to protect your private pension, see Personal Pension Security.

Unfortunately there is very little you can do to prevent your employer and/or pension fund manager from stealing money from the pension scheme to which you belong. The chances of this happening are however very slight, and only a small percentage of pension scheme members have been seriously affected by pension fraud. If you have concerns about the way in which your money is being handled or have reason to believe that your pension scheme is being affected by fraudulent activity, contact an independent financial advisor, or your local branch of the Citizens Advice Bureau for advice. You should make a complaint through your pension scheme: every scheme will have a complaints service. If you are not happy with the answer you are given you can contact the Pensions Advisory Service on 0845 601 2923; the Pensions Advisory Service can make enquiries into your pension scheme on your behalf and help you negotiate an outcome with your scheme provider. If all these measures fail to reach an appropriate outcome you can request the help of the Pensions Ombudsman. The Ombudsman will assess your case and if appropriate make a legally binding decision.

If it is found that your pension scheme managers have been stealing money from the funds, the Pension Compensation Board ensures that money that is not returned to the pension fund by those responsible can be claimed in compensation, up to a maximum of ninety percent of the total losses. The chances of pension fraud are small, and the chance that you would lose a huge amount of your pension as a result is further reduced by the investigation and compensation schemes set up to prevent and protect members whose pension scheme savings are at risk.

If your employer goes bankrupt, or for some other reason is unable to pay you the pension benefits you were promised, your right to receive this pension is protected. Following the rush of employers who wound up their pension schemes when they registered insolvency in the late nineteen nineties, the government set up two organisations designed to help victims of pension insolvency. The Financial Assistance Scheme, or FAS, assists those members affected by the original insolvency crisis. The scheme will assess your case and then make compensation payments to you or your survivors. The compensation you receive will be equivalent to up to eighty percent of the benefits you were promised, depending on how badly you were affected by the wind-up of the scheme. If you already receive a pension from the scheme worth eighty percent of your expected benefits you will not be eligible for compensation. There is a maximum limit on the annual compensation paid, currently £26,000, to ensure that the FAS has sufficient funds to cover each applicant's compensation claim. If you were expecting a much higher pension, you may lose out. However, £26,000 a year would give you a monthly income of over two thousand pounds, without considering the income other investments or the State Pension would pay you: it is unlikely you will be forced into poverty if the FAS agrees to compensate your loss. You can contact the FAS on 0845 601 9941.

In addition to the Financial Assistance Scheme, the Pension Protection Fund, or PPF, assists pension scheme members whose schemes have wound-up due to insolvency since the initial pension crisis. Not every pension scheme is protected by the PPF, but if you are eligible the PPF pays you a compensation of up to ninety percent of your expected pension. If you are already drawing a pension when the scheme winds up, you are entitled to compensation up to the total value of your promised pension. As with the FAS the PPF has a maximum limit on the annual compensation paid, currently set at £27,770. The PPF can also pay compensation to survivors of the pension scheme member. You can contact the Pension Protection Fund direct on 0845 600 2541.

If you are a member of an occupational defined contribution scheme, your total pension fund will depend on the success of your investments. It is vital to ensure that your pension fund is as safe as it can be, and that you are getting a good deal from your pension scheme provider. An occupational defined contribution scheme, also known as an occupational money purchase scheme, operates the same way as any other money purchase scheme. All personal pensions and stakeholder pensions are money purchase schemes and rely on the money you invest building to a fund which can buy you an annual pension on retirement. Any savings scheme that relies on the investment market will never be risk-free, but there are measures you can take to ensure that your pension fund is not in unnecessary danger. For more information, see Personal Pension Security.

If you have concerns regarding the security of your occupational pension, talk to the pension scheme advisers. They may be able to put your mind at ease by informing you of the measures in place to prevent losses to the pension fund and/or the loss of the pension scheme in the event of insolvency. In addition, the pension scheme advisers should be able to tell you how secure your particular pension scheme is and for what reasons. If you are left with uncertainty, consider requesting the advice of an independent financial advisor, who can take your individual financial circumstances into consideration and determine your retirement security, as well as suggest ways to reduce any apparent risks.