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Glossary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pension rescue schemes
Pension Rescue Schemes Explained

Pension rescue schemes are plans that are set up with the aim of supporting and helping employees whose company pension schemes have collapsed or failed.

There are two main types of pension rescue schemes in place.

They are as follows:

  • The Financial Assistance Scheme

  • The Pension Protection Fund

While both of the abovementioned pension rescue schemes provide compensation to their members, there are key differences between them as detailed below:

The Financial Assistance Scheme (FAS)

This pension rescue scheme will help approximately 125,000 employees in the UK who are members of eligible company pension schemes that have been closed down or are in the process of being closed down. This group of people are not covered by the Pension Protection Fund, which was set up later.

Those who qualify for this pension rescue scheme are employees who are:

  • within 15 years of retirement on 14 May 2004

  • whose company pension schemes collapsed between 1 January 1997 and 5 April 2005.

Those employees who are eligible can expect a payout of a maximum of 80% of their expected pension entitlement, with a cap of £26,000 a year. Unfortunately, pension rescue scheme payments will not be index-linked to keep up with inflation. They will remain fixed for the duration of retirement. The money needed to cover this pension rescue scheme will come from the Treasury. It has pledged an initial sum of £20m a year for the next 20 years, equivalent to a total of £400m. The government announced it would pledge a further £8bn, as outlined in the March 2007 Budget. If you are forced to retire early due to ill health, your pension will not be covered by the FAS.

If your company pension scheme is currently in the process of being closed down, you will not receive any payments immediately. Payments will be made only after a pension rescue scheme has been wound up, which can sometimes take years. You will not benefit from any payments even if you are past retirement age.

For employees who were within 15 years of their scheme pension on 14 May 2004, your surviving spouses or civil partners will receive 50% of your level of assistance. Surviving spouses and partners can make claims irrespective their age. If you are a survivor of a scheme member who died before the start of scheme's collapse, you will be treated as 'qualifying members' and be entitled to pension rescue scheme payments.

If you are a member of more than one failed company pension schemes, it is possible for you to receive multiple FAS payments. This could mean that the total amount of you receive is more than the £26,000. Similarly, you could receive FAS payments in your own right as well as 50% of your deceased husband's, wife's, or civil partner's payment.

Some recent changes to this pension rescue scheme include the following:

  • extending the qualifying age for pension rescue scheme members from three years to 15 years before their normal retirement age

  • setting 28 February 2007 as the qualifying date for schemes affected by insolvency

  • the provision for a right of review and appeal of a decision as to whether or not a member is terminally ill

The Pension Protection Fund

The money to fund this particular pension rescue scheme will come from a levy charged to all private sector defined-benefit or hybrid company pension schemes.

Those who qualify will be employees whose company pension scheme has collapsed since 6 April 2005, and where there is no possibility of saving the pension scheme. The maximum payment you are entitled to is an overall cap equivalent to £27,000 at age 65, adjusted according to the age at which compensation payments start.

Eligible members who have reached the pension rescue scheme's pension age, or who are already receiving a pension, will have their entitlement paid in full. Eligible members who are below the scheme's pension age will receive 90% of the pension they had accrued immediately before the date the scheme officially became insolvent, which is referred to as the assessment date.

Some but not all the pension rescue scheme payments will be index-linked to keep up with inflation. For each year between the assessment date and the start of payments, compensation will be re-assessed in line with the Retail Prices Index. When you start receiving payments, the portion that derives from pensionable service since 6 April 1997 will be improved annually in line with the RPI but it will be capped at 2.5%.

Surviving spouses and civil partners will receive 50% of their partner's level of pension rescue scheme's assistance on their death.

Learn more about pensions

 
 
 
 
 
 
 
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