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Last Updated: Thursday, 12 February, 2004, 10:37 GMT
Q&A: The Pension Bill and you
The government has outlined how it intends to tackle the UK pension crisis. How will the changes affect you?

Why has the government acted?

Confidence in UK pensions has been very heavily shaken, partly by stock market falls of recent years but also because a number of companies have chosen to wind up employee pension schemes, often leaving those who have contributed for years with nothing.

It has been estimated that up to 200 firms have wound up their pension schemes either voluntarily or as a result of insolvency.

An estimated 60,000 workers have had their pensions affected.

Under current rules retired workers enjoy first call on the available funds when a scheme is wound up.

This means that, after a lifetime's contributions, a scheme member of working age might be left with very little, through no fault of their own.

In some cases, workers have lost all their retirement savings when a pension scheme has been wound up.

What has the government done?

The flagship measure of the Pension Bill is the establishment of a Pension Protection Fund (PPF).

Employers operating a pension scheme will have to pay into the fund, which will compensate workers if their scheme is wound up.

The government has said that it wants the PPF up and running by April 2005.

How much will employers have to pay in?

The PPF works like an insurance scheme and the government has said that the levy made on employers should reflect risk.

"We are proposing a fee that takes account of the number of members in the scheme, the level of funding in the scheme, and we make provision for level of risk, the credit rating of the company and the asset allocation within the fund as well," said Andrew Smith, the pensions minister.

However in the first year a flat fee will be imposed.

In order to sweeten the pill for employers the government has promised to cut red tape and relax the requirement on some pension schemes to increase payouts to retired members by 5% a year.

And a new pension regulator is being set up to oversee implementation of the PPF and good governance of UK pensions schemes.

What about those who have already lost out?

The Pension Bill provides no comfort for those who have already seen their retirement incomes slashed as a result of their scheme being wound up.

While expressing sympathy for those who have lost out, Mr Smith said that what is effectively an insurance policy could not pay out retrospectively.

However, pension campaigners have pledged to carry on the fight for compensation.

They claim that backbench MPs, sympathetic to their cause, are poised to introduce an amendment to the Pension Bill allowing retrospective compensation.

Are there more changes on the way?

This is one part of government moves to ease the UK pension crisis.

The Treasury has also been consulting on proposals to impose a 1.4m lifetime limit on the size of an individual pension pot and reform the requirement for all pension savers to purchase an annuity by the age of 75.

Further Treasury proposals are not expected until March at the earliest.

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