After the risk of pensions collapsing made headlines, here’s how your retirement savings are protected

| Category: News

Recently, you may have read headlines about how pension funds were close to collapsing. Naturally, you may be worried about your retirement savings and what protection is in place. Read on to find out.

In September, former chancellor Kwasi Kwarteng delivered a mini-Budget that included aggressive tax cuts. It led to market volatility and the pound falling in value. While the government has since reversed many of the measures, you may have heard that the volatility it caused placed some pensions at risk.

The Bank of England (BoE) said that pension funds with more than £1 trillion invested in them came under severe strain, and several of them were in danger of collapsing following Kwarteng’s statement. Some funds would have been left with negative asset value and wouldn’t have been able to meet cash demands.

The BoE stepped in with emergency intervention to calm the turmoil. It pledged to buy up to £65 billion of government debt to stabilise the markets.

The steps taken by the BoE were effective, but the news that pension funds could collapse due to political and economic uncertainty can be a worry. However, there is protection in place.

The Pension Protection Fund protects defined benefit pensions

Much of the concern about pensions collapsing was about defined benefit (DB) pensions, also known as “final salary” pensions.

A DB pension is often considered the gold standard of pensions, as they will provide a reliable income for the rest of your life. The income provided is usually calculated based on your average salary and how long you’ve been a member of the scheme.

Many DB pensions also come with other benefits, such as providing an income for your partner or dependent children if you passed away.

DB pensions are now less common as they represent a significant commitment from the pension scheme. As life expectancy rises, they’ve become more expensive to administer. However, they are valuable for retirees as they offer financial security and are often generous.

If a DB pension scheme collapsed, the Pension Protection Fund (PPF) could protect your retirement income.

According to the PPF, it protects millions of people who belong to a DB pension scheme in the UK and pays pension benefits to more than 260,000 people.

If your DB pension becomes insolvent and cannot provide you with the pension they promised, the PPF could provide compensation instead.

If your pension scheme qualifies, the amount of pension compensation you’d receive would depend on if you’ve reached the scheme’s pension age or not.

  • If you are under the pension age, you’d be entitled to 90% of the pension amount you had built up before the scheme became insolvent.
  • If you are over the scheme’s pension age or start drawing your pension early due to ill health, you’ll receive the full pension.
  • People receiving a survivor’s pension, such as widowers or children, will normally qualify for 100% of the pension income.

One important thing to note is that your income may not increase annually by as much as you expect through the PPF.

Many DB pensions provide an income that rises in line with inflation to preserve members’ spending power throughout retirement. However, increases in PPF compensation are capped at 2.5%, which could be significantly below expectations in a high inflation environment.

You can find a full list of pension schemes that are covered by the PPF here: ppf.co.uk/schemes/index

The Financial Services Compensation Scheme covers defined contribution pensions

Much of the turmoil reported in the news related to DB pensions, rather than defined contribution (DC) pensions. However, there are still protections in place for DC pensions that could give you peace of mind.

With a DC pension, you will make contributions, which benefit from tax relief, and are usually invested through a fund. In most cases, your employer will also need to make contributions on your behalf. When you retire, you will have a pot of money that you can use to create an income.

If your DC pension scheme collapses, you will often be covered by the Financial Services Compensation Scheme (FSCS).

  • You can claim up to 100% of your pension, with no upper limit, if your pension provider fails.
  • If your self-invested personal pension (SIPP) operator fails, you can claim up to £85,000 per person, per firm.

Pensions are complex, and you can check how protected your pension is here: fscs.org.uk/check/pension-protection-checker

The FSCS will not provide compensation if the investments held in your pension have not met your expectations or fall in value. So, it’s still important to understand your risk profile and choose a fund option that’s suitable for you.

Contact us to talk about your pension

If you have questions about your pension, including how your savings are protected and what you can do to get the most out of them, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

Testimonials

Blue Ocean has always given me the help and advice that I feel protects my family’s investments. Not only have we used Blue Ocean for more than 20 years, but the team have always made us feel welcome. Always at the end of the phone for any advice we may need. Many thanks!

Russell Paul David

Rochester, Kent

A client since 2001

Professional and reactive to any questions regarding your investment.

Michael Gould

Kent

A client since 2011

Knowledgeable, approachable and always happy to discuss my issues.

Michael Southall

London

A client since 2018

Very good, friendly advice from a good team.

Stephen Williams

Kent

A client since 2010

Having been a client of Blue Ocean for the past 3-4 years, I can honestly say there is nobody I trust more with regards to my financial future than John and the team. Too good to be true? Not with Blue Ocean!

Liam Ryan

Essex

A client since 2016

I moved my investments to Blue Ocean in 2014. The advice I have received has been more professional and my investments have performed better. The staff are polite and always quick to respond to queries.

Lee Menzies

East Sussex

A client since 2014

I find them very easy to deal with. Extremely knowledgeable and with no pressure.

George Howell

Bexleyheath

A client since 2016

We have used John Doyle and Blue Ocean for over 20 years as our financial adviser for everything from mortgages, pensions, income protection, trusts and investments. His advice has always been realistic, reliable and no-nonsense. He has always understood our requirements and has advised accordingly.

Michaela Franklin

Kent

A client since 1999

Having the benefits of sound financial advice from Blue Ocean for over 20 years, I would recommend them without hesitation.

Andrew Martin

Medway, Kent

A client since 1999

I have been advised by Blue Ocean for the past 21 years, and have always found their service sound, helpful and supportive.

Louise Bober

Kent

A client since 1999

Working with Blue Ocean has enabled myself and my wife to invest our pension savings with the confidence that they are being managed by a professional team of qualified financial advisers. They have been very supportive and responsive when we've requested a detailed analysis of our investment performance and the outcome has been positive in terms of the expected returns. I have recommended family and friends to Blue Ocean and they have been equally very satisfied with the service.

Glen Ridout

Kent

A client since 2011

I love Blue Ocean Hartley! So very helpful and fantastic staff.

Christine Bryant

Dartford, Kent

A client since 2009

I have received honest advice in a relaxed, friendly environment with my personal circumstances paramount.

Janice Hill

Kent

A client since 2009

Honest, well versed, ‘personal touch’ business out to make sure everyone has satisfaction.

John Townsend

Hearn Bay, Kent

A client since 2017

Since we have used John and the team over the years our investments have gone from strength to strength. We’re very happy with the work they have done for us. I am now in a position to retire with no money worries.

Keith Yeates

Kent

A client since 2008

Blue Ocean resolved a difficult situation in a very satisfactory way. The whole staff are extremely friendly and helpful and it was very cost-effective.

Richard Mersh

Kent

A client since 2017

Bespoke service... friendly, helpful staff.

Jane Stevens

Dartford, Kent

A client since 2017

I have known John for over 20 years and have always been satisfied with his integrity, knowledge and reliability. I recommend him to business and family contacts without reserve.

Paul Richardson

Surrey

A client since 2002

Over the past 18 years, I have received very reassuring advice on my investments and always been treated in a friendly but professional manner.

Jacqueline Prosser

Surrey

A client since 2001

We would have no problem whatsoever in recommending the services of Blue Ocean for sound financial appreciation and advice, all handled in a friendly, convivial and concerned manner. Blue Ocean are always looking at how they can go that extra mile for their clients. This is a rare positive commodity in any business environment in today's world. The financial advice is always considered and simply explained in terms of what if and if you invested here etc. There is no pressure put on me to invest in high-risk return possibilities and at all stages the advice given is tailored to the perceived situation of their clients.

Barry William Ednie

Tonbridge, Kent

A client since 2013