What happens to your pension if your company goes bust?

Find out how you're protected if your company goes bankrupt, including how the Pension Protection Fund works.
Paul Davies
graph showing price rises

In this article

Will I lose my pension if my company goes bust?

Most workplace pensions today are defined contribution schemes, where the overall value of your pot depends on how much you and your employer have contributed, and how the underlying investments have performed.

These are usually run by pension providers rather than employers, meaning that your money will be safe even if your employer goes bust. 

However, if you're part of a defined benefit (also known as 'final salary') pension scheme, it's your employer's responsibility to make sure there's enough to pay all members.

If they are unable to do this, there is a safety net to make sure you'll still get a pension. This is called the Pension Protection Fund (PPF).

Make your money go further

Find the best deals, avoid scams, and grow your savings with our expert guidance. From only £4.99 a month.

Join Which? Money

Cancel anytime.

What is the Pension Protection Fund?

The Pension Protection Fund is a public corporation that sits within the Department for Work and Pensions.

It pays compensation to people who have a defined benefit or final salary pension with a company that has gone bankrupt.

Is my pension scheme covered by the Pension Protection Fund?

The PPF applies to defined benefit schemes. It does not protect defined contribution pensions or public sector pension schemes.

For a scheme to enter the Pension Protection Fund the following must apply:

  • the company has gone bust after April 2005 and the pension scheme is being wound up after this date
  • there must be no chance that your pension scheme can be rescued
  • there isn't enough money in the pension scheme to pay the benefits you would get in the Pension Protection Fund

How much compensation will the Pension Protection Fund pay?

I have already retired

If you're already receiving a pension from your former employer's scheme before it goes bust, you'll receive a pension from the PPF equal to 100% of your employer's pension on the date of its insolvency.

But how much your pension increases by every year could be affected.

Only payments from your pension built up after 5 April 1997 will rise in line with inflation each year, subject to a maximum of 2.5%. Payments built up before that date will not increase.

I haven't yet retired

If you haven't reached your scheme's 'normal pension age', you will receive 90% of your pension from the Pension Protection Fund.

Once you start receiving payments, payments from the pension you built up after 5 April 1997 will rise in line with inflation each year, subject to a maximum of 2.5%.

Payments relating to service before that date will not increase.

Is there a cap on compensation from the Pension Protection Fund?

No. Following a court ruling in July 2021, a compensation cap no longer applies. 

The table below shows how compensation was capped before this date, depending on your age. 

5572%£29,871
5674%£30,727
5776%£31,640
5879%£32,611
5981%£33,647
6084%£34,750
6187%£35,925

What if my company went bust before April 2005?

The Pension Protection Fund only applies to companies and employers that went bust on or after 6 April 2005.

Companies that went bust between 6 April 1997 and 5 April 2005 are covered by the Financial Assistance Scheme (FAS).

Similar to how the Pension Protection Fund operates, this scheme pays out 90% of the benefits you would have received. Unlike the PPF, there is a cap on compensation (£41,888 a year). 

Before 1997 there was no formal protection scheme in place for failed pension schemes.

How are defined contribution pensions protected?

Pension companies should 'ringfence' your pension savings, which means that if they were to go bust, your pension would be safe.

However, if necessary you can seek compensation from the Financial Services Compensation Scheme (FSCS) if your pension provider goes bust.

The FSCS pension protection checker can help you find out how much protection you might be entitled to.

What is the Fraud Compensation Fund?

If your employer has gone bust and the value of the pension fund has lost money because of dishonesty or fraud, there is a separate fund to pay compensation.

This is called the Fraud Compensation Fund. It covers most workplace defined benefit and defined contribution pension schemes.

Pension Protection Fund FAQs

Retirement Newsletter

Free tips to help you make the right retirement choices

Sign up now

Related articles

About Us

Which? Limited is registered in England and Wales to 2 Marylebone Road, London NW1 4DF, company number 00677665  and is an Introducer Appointed Representative (FRN 610689) of the following:


1. Inspop.com Ltd for the introduction of non-investment motor, home, travel and pet insurance, who are authorised and regulated by the Financial Conduct Authority (FCA) to provide advice and arrange non-investment motor, home, travel and pet insurance products (FRN310635). Inspop.com Ltd is authorised and regulated by the Financial Conduct Authority (FCA) to provide advice and arrange non-investment motor, home, travel and pet insurance products (FRN310635) and is registered in England and Wales to Greyfriars House, Greyfriars Road, Cardiff, South Wales, CF10 3AL, company number 03857130. Confused.com is a trading name of Inspop.com Ltd. 


2. LifeSearch Partners Limited (FRN656479), for the introduction of Pure Protection Contracts and Private Health Insurance, who are authorised and regulated by the FCA to provide advice and arrange Pure Protection Contracts and Private Health Insurance Contracts.  LifeSearch Partners Ltd is registered in England and Wales to 3000a Parkway, Whiteley, Hampshire, PO15 7FX, company number 03412386.


3. HUB Financial Solutions, for the introduction of equity release advice and an annuity comparison service, who are authorised and regulated by the Financial Conduct Authority (‘FCA’) to provide advice and guidance on financial products for those who have retired or are approaching retirement (FCA Firm Reference Number: 455713). HUB Financial Solutions is registered in England and Wales to Enterprise House, Bancroft Road, Reigate, Surrey RH12 7RP, company number 05125701.


4. Alan Boswell Insurance Brokers Ltd (FRN 301), for the introduction of non-investment landlord insurances, who are authorised and regulated by the Financial Conduct Authority to provide advice and arrange insurance contracts. Alan Boswell insurance brokers Ltd is registered in England at Prospect House, Rouen Rd, Norwich NR1 1RE, company number 02591252.


Other financial services:

Mortgage service provided by London & Country Mortgages (L&C), Unit 26 (2.06), Newark Works, 2 Foundry Lane, Bath BA2 3GZ. London & Country are authorised and regulated by the Financial Conduct Authority (registered number: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage.


We do not make, nor do we seek to make, any recommendations or personalised advice on financial products or services that are regulated by the FCA, as we’re not regulated or authorised by the FCA to advise you in this way. In some cases, however, we have included links to regulated brands or providers with whom we have a commercial relationship and, if you choose to, you can buy a product from our commercial partners. 


If you go ahead and buy a product using our link, we will receive a commission to help fund our not-for-profit mission and our campaigns work as a champion for the UK consumer. Please note that a link alone does not constitute an endorsement by Which?.