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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).
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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.
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:
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.
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.
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.
| 55 | 72% | £29,871 |
| 56 | 74% | £30,727 |
| 57 | 76% | £31,640 |
| 58 | 79% | £32,611 |
| 59 | 81% | £33,647 |
| 60 | 84% | £34,750 |
| 61 | 87% | £35,925 |
| 62 | 90% | £37,179 |
| 63 | 93% | £38,515 |
| 64 | 96% | £39,941 |
| 65 | 100% | £41,461 |
| 66 | 104% | £43,081 |
| 67 | 108% | £44,811 |
| 68 | 113% | £46,660 |
| 69 | 117% | £48,644 |
| 70 | 122% | £50,781 |
| 71 | 128% | £53,092 |
| 72 | 134% | £55,604 |
| 73 | 141% | £58,342 |
| 74 | 148% | £61,337 |
| 75 | 156% | £64,918 |
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 (£45,455 a year).
Before 1997 there was no formal protection scheme in place for failed pension schemes.
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.
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.