Page last updated at 15:16 GMT, Thursday, 11 December 2008

Woolworths set for pension rescue

A Woolworths store
The pension scheme was already scheduled for closure next January
The administrators of Woolworths have admitted there is no hope of selling the business as a going concern.

With about 27,000 staff in danger of losing their jobs by the end of the year, some of them will be wondering what will happen to their pension scheme.

They can be grateful that three years ago the Pension Protection Fund (PPF) was set up.

This exists to provide a safety net for the membership of schemes where an employer has gone bust and the pension scheme has a deficit.

That is precisely the situation at Woolworths, whose scheme is going to become one of the biggest claims yet on the finances of the PPF.

"Our belief is the scheme will now enter the PPF assessment period," said a spokesman for the administrators Deloitte.

"The administrators are now consulting with the scheme trustees."

The situation was confirmed by the PPF.

"We have received official notification that the employer is insolvent," said a spokesman.

"We are ironing out the details with the trustees to make sure it is eligible for a rescue."

Closing down

The Woolworths scheme was going to be closed entirely, even to existing members, early next year.

The scheme had assets of 315m.

But while these had risen in value by 39% in the three years to last March, the liabilities - the value of the assets actually required to pay current and future pensions - had shot up by 80% to 462m.

This meant a huge deficit of 147m which the firm said meant its own contributions to the fund would nearly triple next year to about 30m a year.

Woolworths had recently written to staff to consult them on its closure plan, proposing to provide them with a much cheaper "money purchase" scheme instead.

The firm's insolvency has effectively achieved the closure of its final salary scheme, but just a bit quicker.

It appears that only a small minority of the staff at Woolworths were members of their scheme, with fewer than 5,000 active contributors making contributions, less than one in five employees.

There were about 1,500 pensioners and 4,000 deferred members - people who had left the firm's employment but who have yet to retire.

What next?

Despite the insolvency, for at least the next year the scheme's trustees will keep formal responsibility for running the scheme.

But during this assessment period, the PPF will be working out exactly how many members there are; who they are and where they live; what the assets are; and most importantly how much the members are entitled to receive.

After a year or so in the "holding pen," the PPF will absorb both the assets of the Woolworths scheme, and take on responsibility for paying the pensions.

Pensioners can sleep easy because the PPF guarantees to keep paying what they were getting before.

But the safety net is not quite so generous for those yet to retire, or who chose to retire early.

Broadly, they will get 90% of their expected pension, although this is capped according to age.

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