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What happens to my pension if the company goes through liquidation?

During insolvent liquidation, whether initiated voluntarily or by a creditor, the office-holder will liquidate all assets for the purpose of repaying creditors. However, the company’s pension plan is excluded from these assets.

Pensions are given protection in the event of a company’s liquidation and if you held both the roles of an employee and a director at the company, your pension may be protected by legal provisions.

What type of pension plan was in place at your workplace?

Defined Contribution Scheme


Defined contribution plans, also referred to as money purchase plans, are a popular option in the workplace. The benefits received by members at retirement are based on the performance of the scheme over time, the total contributions, and the fees charged.

The employer bears no financial risk as the scheme is not directly linked to the company.

What is the outcome for defined contribution pension plans in the event of liquidation?


When a company offering this type of workplace pension plan enters liquidation, there is no direct impact on the pension scheme or individual pension funds as the scheme is managed independently and is not connected to the company.

In some instances, a company facing insolvency may fail to make contributions to the pension plan due to financial constraints, but employees can make a claim for unpaid contributions from the National Insurance Fund (NIF) in the event of being made redundant.

Defined Benefit Scheme


Defined benefit pensions, also known as final salary pensions, offer a lifelong income to members in the form of a fixed monthly payment upon retirement. Unlike defined contribution pensions, the benefits do not depend on the performance of underlying investments.

However, these types of pensions are becoming less common due to their high cost and the significant financial risk taken on by the employer. The monthly payments are determined based on factors such as the employee’s length of service, their final salary, and retirement age.

What happens to defined benefit pensions during liquidation?


If your company offers a defined benefit pension and is unable to meet its obligations to current and former employees, the Pension Protection Fund (PPF) provides protection. The PPF is funded by regular contributions from companies offering these types of pensions.

In the event of liquidation, the PPF will cover full pension payments for retired employees and up to 90% of the pension value for current employees.

Pension schemes can be complex, and it is important to seek expert guidance if your company is facing financial difficulties. InsolvencySupport.co.uk offer professional support and guidance, and you can contact them for a free same-day consultation. They have a network of offices throughout the UK, ensuring that help is always close by.

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