For many decades employees in medium and large-sized companies took membership of final salary pension schemes for granted.

At the time, employers thought the cost was a worthwhile expense, to attract and retain staff. Paternally many saw the benefits from the scheme as the way to ensure, that loyal staff would enjoy a financially secure quality of life in retirement. Over the years, though, increasing numbers of employees – particularly younger employees – came to take this benefit for granted and knew and cared little about the high cost to their employer of providing it.

Changes in legislation and investment markets have increased the cost to employers of providing these final salary pension schemes. Most have now closed the scheme to new members or wound the scheme up altogether, replacing the promise of future benefits with an alternative pension provider (usually an insurance company).

In itself, these developments should give little cause for concern to scheme members except where the pension scheme does not have enough assets to meet all the promises it has made to past and present employees. Even then, pension scheme members should not usually be too worried as the shortfall must be corrected by additional contributions by the employer.

But what if the employer has ‘gone bust’ or is well on the way to this fate?

Put simply, in these circumstances the scheme looks to the employer for more money. If the employer is no longer able to pay, the scheme therefore can’t afford to pay all the members their promised benefits. Ultimately this could lead to the pension scheme being forced to wind up, leaving members with much-reduced benefits, even where the Pension Protection Fund comes into operation.

If you have benefits with a previous employer’s pension scheme and are concerned about the financial stability of the employer (note: don’t worry too much about the finances of the scheme; it’s the finances of the employer that matter most) please take immediate advice……