Is your workplace pension protected?

Following recent news headlines of high profile workplace pension schemes running into difficulty, more people are looking into the safety of their pension. The difficulties usually occur when an employer running a defined benefit pension scheme runs into financial problems and are unable to fulfil their scheme funding obligations. However financial protection is often in place, and if it is, you will still receive your pension even if your company fails.

Understanding if you have protection

We know that your workplace pension could be an important part of your financial future, and if you’re saving into this regularly, it could be one of your most valuable assets. With this in mind it’s important to know if, and how your money is protected if your employer was to go into administration, liquidation or close down.

In most cases the short answer is, yes, your workplace pension is protected.

The protection you get depends on the type of workplace pension you have. Most people who’ve been automatically enrolled into a pension are in a defined contribution scheme. This is where you, the Government and your employer pay a percentage of your salary into your policy. The policy is held by a pension provider, such as Scottish Widows and your money is invested with the aim of growing your savings for retirement.

The other type of workplace pension scheme is known as defined benefit. This is where your employer guarantees a certain level of income in retirement. It is based on your length of service and either final salary or average earnings.

If you’re unsure which type of pension you are in speak to your employer.


Protection of defined contribution pensions

Because your pension is held by a pension provider it sits independent of your employer. Therefore, you wouldn’t lose your pension savings if your employer went out of business.

If your pension provider is authorised by the Financial Conduct Authority (FCA), as Scottish Widows is, your pension is protected by the Financial Services Compensation Scheme (FSCS). That means if the pension provider went bust, your pension would be protected in full with no cap on the compensation.

You can find more information on the FSCS website.

Protection of defined benefit pensions

If you have a defined benefit pension, the employer has a responsibility to pay you an income when you retire. If that employer goes out of business and there isn’t enough money in the scheme, you are protected by the Pension Protection Fund (PPF).

The amount of protection provided by the PPF depends upon your individual circumstances and any cap which applies.

You can find more information on the PPF website.