Carillion pensions entering the Pension Protection Fund (PPF)
Important – this page was posted on 15 January 2018 as news of Carillion’s collapse broke. More up to date information may be available as events unfold.
In addition to Carillion’s “Defined Benefit” final salary pension schemes which are affected by this news, the company also has responsibility for a number of personal pension schemes (you may know them as “Stakeholder”, “Money Purchase” or “Defined Contribution” schemes). These personal pension schemes will be unaffected by Carillion’s situation.
What is happening?
Carillion’s collapse into liquidation has gone from speculation of a possible future event to sad and shocking reality in only a few days, and hence many of the specifics are still unclear. This includes the fate of the final salary pension scheme. We do know that in 2017, Carillion reported its pension deficit at £587m and that this morning the Financial Times reported that around 28,000 members of Carillion’s 13 UK pension schemes will now be transferred to the Pension Protection Fund, the industry lifeboat for collapsed companies
Nicola Parish, executive director at The Pensions Regulator, has stated that: “It is too early to comment on possible outcomes for the various pension schemes connected to Carillion. In the meantime, I would like to assure scheme members that the government set up the Pension Protection Fund to support members of workplace pensions in precisely these circumstances.”
What is the Pension Protection Fund?
The Pension Protection Fund (PPF) was set up by the government to protect members of final salary pension schemes. In the event that the employer providing the pension is unable to afford to pay the retirement incomes or, as in Carillion’s case, collapses altogether, the PPF steps in as a lifeboat.
If the PPF takes on your pension scheme then they will pay your retirement income instead of your previous employer.
The PPF currently has cash reserves of around £6bn and circa £28bn in assets. The PPF now takes responsibility for the pensions of 235,000 people, with 128,000 of them currently in receipt of compensation.
Will I get the same amount of pension?
Pension scheme members who are transferred to the PPF, and not yet retired, will receive 90 per cent of the pension they were expecting, up to a cap. The cap at age 65 is, from 1 April 2017, £38,505.61 (this equates to £34,655.05 when the 90 per cent level is applied) per year.
Members already receiving their pensions will continue to receive 100 per cent of their benefits, but may see lower annual increases. The pension which a surviving spouse may inherit may also be smaller.
Can I still transfer away from my pension if I want to?
No you can’t. As soon as your pension enters the PPF, you lose your options. This includes losing access to the pension freedoms. This, though, is a small price to pay for the security that the PPF brings.
If a scheme applies to the PPF then your options are frozen until the PPF decides whether to accept the scheme or not (generally based on whether the PPF consider the situation with the scheme serious enough to need rescuing at that point).
What if I am in the middle of transferring my pension?
Unfortunately, it is very likely that any transfers will be cancelled unless they have reached a very advanced stage. The trustees are likely to put a blanket freeze on all movement of money in and out of the entire scheme until some key decisions have been made in conjunction with the PPF. Once they are sure of their actions then the trustees will inform members.
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