You do not have to be a financial experts\financial planning experts to know about the current economic situation the world over. The depression and recent Market Turmoil are increasing the numbers of firms descending into administration and eventually liquidation. This will worsen the position both for that company’s workforce but also has a domino affect on other schemes, as examined in some of the other articles or blog posts written on scheme funding. We have already seen the demise of Woolworths and MFI; it is likely that there will be more to come as the depression deepens. The market pundits or elite financial consultants are now predicting a W as against a V; though it does seem the general consensus remains it will get worse before it gets better. The recent snow and the travel chaos which ensued has only served to weaken an already fragile commercial enterprise economy. If the business organisation becomes insolvent it will not be making up the deficit on the pension scheme. The scheme will generally be referred to the Pension Protection Fund (PPF).
The PPF has limited scope and restricted funds with which to support members and protect benefits.
The PPF, which has to work with other bodies , is also likely to suffer delays in being able to pay benefits especially if the numbers of schemes affected increases sharply.
The PPF only provides 90% of benefits capped at £30,856.35 this tax year, at age 65 equating to £27,770.71 gross per annum. Any member on higher benefits will suffer a larger proportionate reduction, hence the reason to consider a transfer if the member has concerns about the business firm and scheme stability.
The PPF is funded by a levy on schemes very like the Financial Services Compensation Scheme and so as schemes falter the costs on remaining schemes will increase. This potentially has the knock on effect of increasing deficits in existing schemes and so the strain on the sponsoring employer.
The National Association of Pension Funds (NAPF) has already called for government backing for the PPF. However one has to consider that the government i.e. we tax payers have already invested heavily in the banking system; can we afford to supplement pensions? Consultations were undertaken in March 2008 between The Pensions Regulator (TPR), Financial Assistance Scheme (FAS) and PPF, and resulted in an agreed two year time limit on the process of referring cases. That does not mean benefits will emerge in two years, but that the process will be in place to enable the PPF to start work.
We were recently advised (November 2009) of a client who had his pension cut from £20,000 to £16,000 following the move of Woolworths to the PPF. This confirms the reductions in benefits are not only affecting the high new worth clients, who have alternative resources, but also ordinary workers.
Under current rules, the member has no option to transfer out of the PPF and so must accept whatever benefits they provide.
Overall then the member may receive reduced benefits and not at the time expected, totally undermining the guaranteed nature of the scheme and lose the transfer alternative.
Our view as elite financial advisors is: get out now, while you can!

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