Money Helpdesk: Pensions should be safe despite takeovers

AS A Forth Ports pensioner and shareholder I am concerned over the position of the pension fund if the company is taken over. I am concerned that the pension I spent years contributing to may be in some way eroded.

I understand that the legal position on winding up (if it comes to that) has changed several times over the past few years. Does a company taking over another still have to ensure that pensions in payment in a solvent company are honoured by the pension fund?

JS

Tom McPhail, head of pensions research at Hargreaves Lansdown, writes:

It is absolutely the case that in takeover situations, the new business owner is bound by requirements to honour existing pension pledges.

The Pensions Regulator has the power to block a takeover deal if it feels that the interests of the pensioners are not being adequately addressed.

Where a company pension scheme has a deficit, the employer is required to agree with the Pensions Regulator a deficit recovery plan detailing the contribution schedule and the time-span required to return the scheme to 100 per cent funded.

This means that the basic position these days is that any pension promises made should be honoured.

Unfortunately, there are always going to be exceptions. Employers do still go bust, and where schemes are in deficit this can mean the members suffering a reduction to their benefits.

For pre-retirement members there is always the option of transferring out, though this is rarely a good deal, particularly if you are still an employee and an active member of the company.

The good news for retired members is that, while they cannot transfer out of the scheme, they do enjoy the highest level of cover from the Pension Protection Fund in the event that it is called upon to bail out the scheme.