Advertise
Resources
Member, Beacon International Group, Ltd.
LONDON--The U.K. government has released draft pension protection rules intended to protect the benefits of employees in underfunded company pension plans that are terminated.
The draft regulations released by the Department for Work and Pensions earlier this week, follow a string of high-profile cases where employees saw their pension entitlements slashed when underfunded plans were wound up.
Currently, existing pensioners have their entitlements protected in full but employees who have not yet retired may end up with little or nothing if a plan is wound up, even if they have worked at the company for decades.
Under the draft regulations, depending on the funds of the pension plan, existing pensioners will keep their benefits, but their future payments will no longer be index-linked.
Existing employees who have been members of the plan for 40 years or more will get their full pension entitlement, again subject to available funds. Entitlements are then reduced on a sliding scale so that workers employed for 20 years receive half their pension entitlement, those employed for 10 years a quarter, and so on. If any funds remain after the payments have been calculated, those with less than 40 years' service will have more of the shortfall made up.
The changes--which ministers want to come into force next year after consultation ends in December--will not be retrospective.
The regulations apply to pension plans run by solvent companies. The government is also considering amendments to protection plans for the pension plans of insolvent employers.