Savers with a certain type of pension, known as a defined benefit (DB) plan, are covered by the Government-backed Pension Protection Fund (PPF) if their employer goes bankrupt and cannot afford to pay out its members’ pensions.
The scheme is funded by a levy paid by eligible pension schemes.
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But in a blow for savers, the Department for Work and Pensions (DWP) said it had decided not to go ahead with the proposed changes.
The idea behind LCP’s proposal was that it would benefit members through better guaranteed protection, but it could also empower pension schemes to take more risk with members’ investments, which could benefit the economy, as opposed to them deliberately taking less risk.
New Government rules, also confirmed yesterday, will allow DB pension schemes to access extra money they have – known as their “surplus”. Over the past few years, schemes have built up considerable surplus, leading to calls that employers should be allowed to access this money to spend elsewhere.
“Additionally, we do not believe the underpin is necessary to encourage schemes to extract surplus. We therefore do not propose introducing this underpin.”
“The idea of increasing the cover provided by the PPF was to give pension scheme trustees confidence that if things didn’t turn out, member pensions would be fully protected,” he said.
“But without this extra protection, some pension scheme trustees may still be unwilling to allow surplus funds to be released, despite the new freedoms”.
The DWP has been contacted for further comment.
How can I protect my pension?
If you are in a DB pension scheme, you will receive a guaranteed income for the rest of your life when you retire. However, there is the very low risk that your scheme could go bust.
It is always a good idea to have some of your own savings to ensure you are covered if you face a short-term gap in your pension payments.
You can open a Self-Invested Personal Pension (Sipp) and put money into it every month to build up your own retirement pot. Savings in a Sipp are backed by the Financial Services Compensation Scheme up to £85,000.
You can also keep your own savings account. It’s worth considering using an ISA, as any interest you earn on your savings is tax-free. You can pay £20,000 into an ISA each tax year.
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