Will the Pension Protection Fund rescue workers?

[POSTMAN]

Will the Pension Protection Fund rescue workers?
Savers must not assume that their pensions are completely guaranteed, despite the safety net offered by the Government’s Pension Protection Fund (PPF).

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This fund was set up to protect employees in pension schemes when customers become insolvent. While most pensions now are ‘money purchase’ schemes, which are ringfenced when a company becomes insolvent, when a final salary pension scheme collapses, members must seek compensation from the PPF.

This compensation falls with age, and is capped at £27,000 a year at age 65. If you are 50 when your employer goes under, the most you will get is around £21,000 a year, while if you are 60 you will get a maximum of £25,000.

There are fears that the PPF, which is funded by an industry levy, might not be able to pay out if large numbers of companies become insolvent in the current economic climate. Schemes run by companies such as Woolworths and Lehman Brothers have already had recourse to the fund. Last month alone, three more schemes came under the wing of the PPF.

Furthermore, the number of companies which pay the mandatory levy is shrinking as more go into administration, leaving a greater burden on the smaller, weaker companies that remain.

The PPF’s last published accounts revealed a £500 million shortcoming in funding, and that figure predates a recent surge in company failures. The high-profile collapses of telecoms group Nortel Networks, high-street retailer Woolworths and china manufacturer Wedgwood, will cost the fund about £500m according to independent pensions consultant John Ralfe. If the Royal Mail group’s pension scheme collapses, it would put a huge further strain on the fund.

The Government could be forced to reduce the level of protection for pensioners and those approaching retirement even further. Such a move is already permitted by the legislation that established the PPF. Some experts believe that the protection levels could be reduced from 100 per cent for pensioners and 90 per cent for employees down to 90 per cent and 75 per cent respectively.

For further information on the fund, and who is eligible to claim, see http://www.pensionprotectionfund.org.uk" onclick="window.open(this.href);return false;.

[POSTMAN]

What will happen to Royal Mail pension?

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How can the Government talk about Royal Mail pensions being cut by half because of the big deficit that has built up?
I have paid into the Royal Mail pension plan for more than 20 years. We have already seen big changes last year to cut costs. Can they really cut the amount I will be paid when I retire?

Des Hamilton, technical director at the Pensions Advisory Service, replies:

Neither a pension scheme's trustees nor the employer can reduce benefits that have already accrued. Legislation protects against this.

The term 'accrued benefits' means the pension you would be entitled to if you were to leave the scheme now. This pension would, of course, not be due to be paid until you reached the scheme's retirement age.

The scheme can, however, be changed in respect to the benefits that can be earned in the future. The process for doing this would be laid out in the documents which govern the management of the scheme. A copy of these documents must be made available to any member who requests them but a reasonable charge can be made for their reproduction.

The comment you refer to about pensions being cut in half was made in the context of what the assets of the scheme would provide if the company were to go into liquidation and the scheme had to be wound up. The scheme is in deficit and the chairman of the trustees was providing a vivid illustration of what pensions could be provided by the assets available.

However, if the employer were to go bust this is not what would happen. There is now an insurance fund to which all salary related schemes must belong (unless their benefits are guaranteed as with public sector schemes). This fund is called the Pension Protection Fund (PPF).

Your scheme would be absorbed by the PPF which aims to provide members who have not yet got to retirement with a pension of 90% of their entitlement earned up to the time the scheme stopped. That 90% is subject to a limit, which is currently £30,856 per year. I suspect that not too many would be affected by the cap.

[baldrick]

What will happen to Royal Mail pension?

Neither a pension scheme's trustees nor the employer can reduce benefits that have already accrued. Legislation protects against this.

Exactly, it's just a ploy to try to scare us. :mfo

[bogstandard]

Royal Mail pensions trustees chairman, Jane Newell wrote to bandy mandy, but the capacity in which she undertook this has been omited from history.
She wrote to him, that is not in question. but the story could be that someone in RM's employ did exactly what they've been told to do by crozier its chief exec to give foundations to his statements.
she was never quoted as writing on behalf of the trustee's just that she held the position of the trustees chair.
Or have i missed something.
I've read nothing stating she acted on behalf of, and with the trustees full knowledge and backing.