The collapse of construction firm Carillion has left many of its schemes' 28,000-plus members anxious, concerned about the future of their pension, as many fall into the Pension Protection Fund (PPF).
And as has been seen with the British Steel pensions fiasco, Carillion members are at risk from scammers, taking advantage of concerned employees and former employees, encouraging them to transfer out.
If you add this to the complexities of defined benefit (DB) schemes, advisers should be bracing themselves for enquiries from concerned pension savers. The combination of Carillion and British Steel, and the high profile nature of both, could see concerns convert into irrevocable actions.
Mark Dowsey, senior consultant at Willis Towers Watson, said: “There is a risk that people might be unduly worried about their scheme. In light of British Steel, the FCA is alert to the risk that people could play on the fears of those individuals."
However, the situation can become even more complicated when the PPF becomes involved.
He added: "While IFAs might be comfortable dealing with other complicated facets of an individual’s circumstances, and they might be confident about dealing with how a particular scheme works, the other element is how the PPF works and understanding quite how benefits will be assessed and paid, because not all individuals will be in the same situation.”
So what happens when a company’s pension scheme faces being put into the PPF assessment period? If a scheme has assets that at the very least are equal to the value of the compensation that the PPF would pay, if it assumed responsibility for the scheme, then the scheme will not enter the PPF.
In the case of Carillion, the value of some of its scheme's assets fall well below the value of the compensation required. The company sponsored a dozen schemes, and a number have already entered PPF assessment, with members more than likely to receive PPF-level pensions.
If a member is older than the scheme's normal pension age, or retired due to ill health, they will get a full pension, but with potentially lower increases. If they are below the normal pension age, they will receive 90 per cent of the accured benefit, and potentially lower increases. There are caps on total payouts from the PPF in both circumstances.
Stuart Price, partner and actuary at Quantum Advisory, said: “Going across to the PPF gives [scheme members] a good guarantee, but still [the benefits are] lower than they would have got had the employer been solvent.”
After the news about Carillion broke there were reports of scammers circling scheme members to coerce transfers. However, Mr Price said this would not affect some members, as once the schemes enter the PPF assessment, which is a lengthy process, members cannot transfer out.