Your pension is one of your biggest assets. Here’s what protection you have if the company running it fails.
The Key Principle — Pension Assets Are Held Separately
The most important thing to understand: pension funds are held in trust, separate from the pension provider’s own money. If the provider goes bust, your pension pot is not available to their creditors.
This applies to:
- Workplace defined contribution pensions
- Personal pensions
- Self-invested personal pensions (SIPPs)
- Stakeholder pensions
Protection by Pension Type
Defined Contribution Pensions
These are your personal pot-based pensions — workplace or personal.
Your money is safe because:
- Assets are held in a legally separate trust or with an independent custodian
- The provider’s creditors cannot access your pension investments
- If the provider fails, your pot transfers to another provider
FSCS protection adds an extra layer:
| What’s Covered | Limit |
|---|---|
| Pension claims against a failed regulated firm | 100% — no upper limit |
| If investments within the pension were with a failed firm | Up to £85,000 per firm |
The FSCS covers situations where you’ve lost money due to the firm’s failure, bad advice, or mismanagement — not normal investment losses.
Defined Benefit (Final Salary) Pensions
These promise a specific income in retirement based on your salary and years of service.
If your employer becomes insolvent and the pension scheme can’t pay full benefits, the Pension Protection Fund (PPF) steps in.
PPF compensation levels:
| Your Situation | Compensation |
|---|---|
| Already receiving pension (at or above scheme’s normal pension age) | 100% of your pension |
| Not yet receiving pension | 90% of your pension, subject to a cap |
| PPF cap (2024/25, age 65) | Around £41,000/year at 90% |
PPF compensation includes:
- Annual inflation increases (capped at 2.5% on pension built up after 1997)
- Survivor benefits for spouses/partners
- Tax-free lump sum options
State Pension
The State Pension is paid by the government from National Insurance contributions. It’s not affected by any company going bust — it’s backed by the state.
The FSCS — Financial Services Compensation Scheme
The FSCS is the UK’s statutory compensation scheme. For pensions, it covers:
When FSCS Applies
- Your pension provider or adviser was FCA-regulated
- The firm has gone into insolvency (or been declared in default)
- You’ve suffered a financial loss because of the firm’s failure
What FSCS Covers in Practice
| Scenario | Protection |
|---|---|
| Pension provider fails | 100%, no upper limit |
| Bad pension advice from a failed adviser | 100%, no upper limit |
| Platform/investment manager fails and your investments were affected | Up to £85,000 per firm |
| Fraudulent pension scheme (regulated) | 100%, no upper limit |
What FSCS Doesn’t Cover
- Normal investment losses (markets going down)
- Unregulated schemes or investments
- Pensions held with overseas providers not regulated by the FCA
- Losses already compensated by another route
The Pension Protection Fund (PPF)
The PPF specifically protects members of eligible defined benefit schemes when the sponsoring employer becomes insolvent.
How It Works
- Employer becomes insolvent
- PPF assesses the pension scheme’s funding level
- If the scheme can pay at least PPF levels of compensation, it may continue independently
- If not, the PPF takes over and pays compensation directly
PPF Funding
The PPF is funded by:
- A levy on all eligible defined benefit schemes
- Investment returns on its assets
- Assets transferred from schemes it takes over
It does not use taxpayer money.
PPF Compensation Cap Rates (2024/25)
The cap applies to members who haven’t reached the scheme’s normal pension age:
| Age at Scheme Entry to PPF | Approximate Annual Cap (at 90%) |
|---|---|
| 65 | ~£41,000 |
| 60 | ~£29,000 |
| 55 | ~£21,000 |
| 70 | ~£57,000 |
If your pension is below the cap, you receive 90% of it. The cap mainly affects higher earners.
What to Do If Your Provider Fails
Defined Contribution Pension
- Don’t panic — your money is held separately
- Wait for communication from the administrators or FCA
- Your pot will transfer to another provider
- Check FSCS if you believe you’ve lost money due to the firm’s actions
- Don’t respond to unsolicited offers — scammers target people in this situation
Defined Benefit Pension
- The PPF assessment period begins — this can take months or years
- You’ll continue receiving benefits during the assessment (at PPF compensation levels)
- The PPF or scheme trustees will write to you with information
- Check if your benefits exceed the cap — you may receive less than your original pension
If You Received Bad Pension Advice
- Complain to the firm first (if it still exists)
- Contact the Financial Ombudsman Service if the firm is still trading
- Claim from FSCS if the firm has gone bust
- Time limits apply — generally 6 years from the advice or 3 years from when you became aware of the loss
Warning — Pension Scams
When a pension company is in trouble, scammers often target affected members with:
- Offers to “rescue” your pension
- Unsolicited calls about pension transfers
- Promises of guaranteed high returns
- Free pension reviews
Never transfer your pension based on unsolicited contact. Check the FCA register for any firm offering pension services.