Pension Protection Fund launches

A scheme to protect employees' pension schemes in the event of their employer declaring bankruptcy has been launched.

The Pension Protection Scheme will pay compensation to members of eligible defined benefit pension schemes, where there is a qualifying insolvency event in relation to the employer as well as in cases where there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation.

The Pension Protection Fund will be funded through compulsory levies on all schemes that are eligible for Pension Protection Fund compensation. When a scheme transfers into the Pension Protection Fund, the remaining assets of that scheme will also be taken in by the Pension Protection Fund.

Chair of the Pension Protection Fund, Lawrence Churchill, said: "The Pension Protection Fund has an important role to play in the changing pension landscape and in restoring confidence in occupational pensions. It will, for the first time, provide a level of security for members of defined benefit and hybrid occupational pension schemes, giving them reassurance that meaningful compensation will be paid even if their employer goes bust. "

However, the Confederation of British Industry (CBI) warned that the success of the Pension Protection Fund depended on it recognising the likely risk of a company becoming insolvent.

CBI Chief, Sir Digby Jones said: "Businesses at most risk and most likely to call on the Pensions Protection Fund, should pay more. The Fund could be in trouble if a proper risk-based approach is not swiftly implemented. Business must not face an ever increasing cost burden."

Sir Digby added: "We need to review the new system to see that it acts in the best interests of employers and employees. The government has acted decisively to protect members' benefits. The priority must now be to improve the environment for employers who voluntarily provide pensions and create a climate which encourages others to follow suit."

(KMcA/SP)