What to Do If Your Company Pension Scheme Is Closed, Frozen or Wound Up
By John T Hughes
Saving for your retirement is increasingly important these days and with an aging population we can no
longer afford to hope that the state pension will supply us with a satisfactory retirement income. Despite being
crucial to our comfort during retirement, pensions can seem a long way off and not everybody takes the time to
ensure they can provide for themselves on leaving work.
Until recently company pension schemes have been the sensible way to save for retirement. By simply ticking a
box when starting a job you can sign up and relax - your future is secure. Recently, however, there has been a
worrying trend that has seen company pension schemes closing, being frozen or even being wound up. This is now even
set to affect the once secure public sector. If any of these things has happened or does happen to your pension it
is important to understand the implications and take action as soon as possible. As they say - time is money.
Closed or Frozen Schemes
Pension regulations allow for a scheme to be closed or frozen if the funds in the scheme make it impossible for
it to meet its current or future payments. If this happens to your scheme don't panic. Closure or freezing of
schemes is designed to protect your existing rights.
A closed scheme can no longer accept new members. Existing members can continue to pay in to the scheme and
receive benefits on retirement. If you join a company where the scheme has closed ask what other options you have.
There may be an alternative scheme to the original, or a 'Group Personal Pension Plan' (GPPI). The other option
will be a stakeholder pension. In case of the latter two options your company does not have to make
If your scheme has been frozen, this will mean no employee can continue to pay into it. Existing members will
not lose money paid into the scheme, but will need to look for a new scheme to continue their pension provision. In
this case you should also be able to take the money from the company pension to invest in your new pension.
What happens when a Pension Scheme is Wound up
A pension can be wound up in the case of merger, bankruptcy or if the company can no longer afford
to run the scheme. In the case of bankruptcy funds in the scheme are secure from the company's creditors and
cannot be used to pay its debts. In this situation you will be able to start a new pension, either private or
with your next employer and transfer funds from the wound up scheme. This is known as a pension transfer. If
your employer can no longer afford the scheme but stays in business they will have to make up the shortfall in
the scheme before it can be wound up. Again your investment is protected. When a pension scheme is wound up due
to merger the new company will be obliged to offer a replacement scheme.
Take Action to Protect your Future
If you find that your pension scheme has closed, frozen or is being wound up, it is important that you take
action immediately. As long as you have an existing pension money is being paid into it, and that money that will
grow each day! Any gaps in pension provision, even short, will affect your pension income on retirement. The law
protects the funds in pension schemes very well, but it is up to you to ensure that your pension fund is working as
hard as it can for you.