Pension wind-up rules face reform

Many scheme members of working age have lost all their pension

The government is to allow workers with company pensions a greater share of any assets if their scheme is wound up.

At present workers face losing their pension if their company goes bankrupt and their scheme is underfunded.

The rule that workers will only receive pension income after retired members have received their pension and an annual raise is to be scrapped.

The change will apply to schemes which are wound up after 10 May, a limitation which may anger some MPs.

Equal share

The change to current regulation governing the distribution of scheme assets when wind up occurs was laid down in parliament by Pension Minister Malcolm Wicks on Monday.

This move means pensioners will get their pension but are less likely to get an increase if the scheme is wound up Malcolm McLean, chief executive Pensions Advisory Service

The changes are meant to ensure a more equal share out of scheme assets.

Under current rules retired workers have first call on their pension scheme assets, following wind-up.

This means that non-retired members will only receive what is left once retired members have had their pension honoured and a year-on-year increase paid.

Under the changes honouring the pension of non-retired workers will leapfrog paying annual pension increases to retired members

"This move means pensioners will get their pension but are less likely to get an increase if the scheme is wound up," Malcolm McLean, chief executive of Pensions Advisory Service (Opas), told BBC News Online.

Protection fund

The rule change is meant as an interim measure before the introduction of a pension protection fund in 2005.

The pension protection fund will act like an insurance guaranteeing that retired scheme members will receive 100% of their pension, while members still of working age will get at least 90%.

The pension protection fund is a key part of the Pension Bill currently passing through parliament.

In recent years an estimated 60,000 workers have lost all or part of their pension when their company has gone bust; these people will not benefit from the interim measure or the pension protection fund.

According to pension campaigners, the government is facing the prospect of a backbench revolt over its failure to include in its Pension Bill any provision to compensate workers who have lost out.