Labour MP John Mann, who is a member of the Commons Treasury Select Committee, said: ‘Sir Philip Green and his family have made millions out of BHS and its hard-working staff. He took over a company with a healthy pension pot, yet when he sold BHS a black hole had appeared in its fund.’
The Guardian has calculated that Green and his family collected £586m in dividends, rental payments and interest on loans during their 15-year ownership of the retailer.
What is the pension protection fund and what does it do?
The Pension Protection Fund was established to pay compensation to members of eligible defined benefit pension schemes, when there is a qualifying insolvency event in relation to the employer and where there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation.
What does it offer:
1) If you were retired and over the scheme’s normal retirement age when your employer went bust, and receiving your pension then the Pension Protection Fund will generally pay 100% level of compensation.
2) If you retired early (except through ill-health) and had not reached your scheme’s normal pension age when your employer went bust, then you will generally receive 90% level of compensation based on what your pension was worth at the time. The annual compensation you will receive is capped at a certain level. The cap at age 65 is, from 1 April 2016, £37,420.42 (this equates to £33,678.38 when the 90 per cent level is applied) per year.
3) When you reach your scheme’s normal retirement age, you will be paid compensation based on the 90% level subject to a cap, as described above.
With all of the above, payments relating to pensionable service from 5 April 1997 will then rise in line with inflation each year, subject to a maximum of 2.5% a year. Payments relating to service before that date will not increase.
What it doesn’t offer:
Flexible drawdown, self-management or the ability to transfer.
For all of you that are members of a company pension scheme, if you haven’t done so already, it is time to find out if the pension scheme is fully funded; that means it has enough money to cover its pension liabilities or if it is in deficit. If it is in deficit you need to know by how much, what the company plans are to rectify this and, most importantly, how stable/safe the company you work or used to work for is. Is there a real possibility that the company could fail? If so, I would seriously consider transferring your pension out of the scheme if you are able to.
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
The defined benefit scheme – whereby the employer promises the employee a specified payment upon retirement, the amount of which is calculated based on several factors including the years the contributor has been in the scheme, their age, and their salary at retirement – is no longer viable in today’s world.