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Pensions

Volume 689: debated on Wednesday 21 February 2007

asked Her Majesty's Government:

What safeguards exist to protect company pensioners if their company is sold or broken up to ensure that any deficit in the moneys available to maintain pension levels is made up and will continue to be made up; and whether they will take action to strengthen the guarantees. [HL1998]

The Government have introduced or strengthened a number of safeguards to protect scheme members where their company is sold on or broken up.

Where a defined benefit occupational pension scheme pension continues to run on and the new sponsoring employer remains solvent, the employer would need to meet the new scheme funding requirements applicable to pension scheme valuations completed on or after 30 December 2005 which are based on an effective valuation date on or after 22 September 2005. Under the new regime trustees must develop prudent funding strategies, and the new requirements can be expected to lead to improvements in scheme funding levels generally over time.

Where such a pension scheme commences wind-up, any deficit in the scheme becomes a debt on the employer. The Government have strengthened this requirement so that the debt is calculated on the basis that the scheme should be able to meet the full costs of winding up and the full benefits that scheme members have accrued and expect to receive (the “full buy-out” level).

The law also specifies a priority order so that, where a defined benefit occupational pension scheme is wound up with insufficient assets to meet all liabilities, the assets are shared as fairly as possible among scheme members.

Where the sponsoring employer of a defined benefit occupational pension scheme becomes insolvent and the scheme cannot pay the benefits members were expecting, members may be eligible for compensation from the Pension Protection Fund, which was set up in April 2005.

The Secretary of State for Trade and Industry may make payments out of the National Insurance Fund into an occupational pension scheme if he is satisfied that an employer has become insolvent and that at the time it became insolvent there remained unpaid employee or employee contributions falling to be paid to the scheme.

In addition to these measures, the Government introduced the financial assistance scheme, which was recently extended substantially. The financial assistance scheme provides assistance funded by the taxpayer to qualifying members of qualifying schemes who face pension losses because their scheme started to wind up underfunded, between 1 January 1997 and 5 April 2005, where the employer is insolvent or no longer exists.

The Government are currently considering the implications of the recent ruling of the European Court of Justice on article 8 of the 1980 insolvency directive, as explained by the right honourable John Hutton in his Written Statement laid in both Houses on 26 January 2007.