BBC Home
Explore the BBC
BBC News
Launch consoleBBC NEWS CHANNEL
Last Updated: Wednesday, 6 April 2005, 10:06 GMT 11:06 UK
Pension compensation fund begins
A woman protesting over pensions
Eroded pension funds have fuelled anger and resentment in the UK
The government's Pension Protection Fund (PPF), which aims to compensate workers who lose out when employers go bust, came into force on Wednesday.

The PPF is essentially a pension insurance plan, which all final salary pension schemes must belong to.

The pension scheme can then resort to the PPF if it does not have enough money to pay its members' pensions.

This will end the "tragedy" of workers being left empty-handed, the government has said.

The pension schemes themselves will pay for the PPF by paying fees for each of their members, thus building a fund.

Under the PPF, when a firm collapses members of the pension scheme still of working age should get at least 90% of the pension they were due to get when they retired, while retired members should get 100% of their pension.

The PPF will only protect members of pension schemes which are wound up after 6 April.

Backdating hopes

Commentators believe the government wants the collapsed pension scheme of engineering firm Turner & Newall - which has 1.9bn of liabilities and a 875m deficit - to be included in the PPF.

Those companies who are producing the threat of a call on the pension fund's resources will pay more than those who are not
Lawrence Churchill, PPF chairman

This should be possible because the rules allow companies that are already technically defunct to delay winding up a pension scheme, in order for it to be eligible for the PPF.

For example, collapsed retail chain Allders is to continue paying into its scheme until June.

If the scheme is then wound up, it will fall under the auspices of the PPF.

However, PPF chairman Lawrence Churchill told the BBC: "We haven't yet received any notification from Turner & Newall that they may qualify for our services."

The government estimates that in the last eight years, as many as 65,000 people have lost 20% or more of their anticipated occupational pensions following the collapse of companies for which they work.

More than 125 final salary pension schemes were wound up in 2003/04.

Plugging the hole

Businesses must not face an ever-increasing cost burden
Sir Digby Jones, CBI director general

Critics of the scheme say the payments into the PPF will discourage firms from running final salary pension funds.

They also fear that the fund will not have enough money and will be overwhelmed if just one company with a huge pensions deficit collapses.

"Businesses at most risk and most likely to call on the PPF should pay more," said CBI director general Sir Digby Jones.

"The fund could be in trouble if a proper risk-based approach is not swiftly implemented. Businesses must not face an ever-increasing cost burden."

But Mr Churchill moved to allay the CBI's fears.

He told the BBC: "We will raise the levy to the appropriate amount year-by-year depending, in our view, on what's required.

"From 2006 we will be charging the levy on a risk basis. So those companies who are producing the threat of a call on the pension fund's resources will pay more than those who are not.

New watchdog

The government argues that the PPF could become an incentive for employers to start paying more into their pension funds and it says there is evidence that employers have already increased contributions to help plug deficits.

Charities have also welcomed the launch of the new fund.

"The PPF is an important step in the process of restoring the trust that has been lost in pensions following the collapse of a number of occupational schemes," said Gordon Lishman, director-general of Age Concern.

The government has also set up the 400m Financial Assistance Scheme (FAS) to compensate workers whose pensions schemes collapsed between 1 January 1997 and 5 April 2005.

To smooth over any teething problems, a new Pensions Regulator, with greater powers than the existing Occupational Pensions Regulatory Authority, is also being created to oversee pension schemes.

Experts explain why the scheme should help employees

The BBC is not responsible for the content of external internet sites


Americas Africa Europe Middle East South Asia Asia Pacific