Pension scheme winding up sounds alarming, but in most cases your money is protected. The rules governing wind-up ensure that scheme assets are distributed fairly to members, and the Pension Protection Fund exists specifically to cover members of defined benefit schemes where assets fall short.
Two Types of Wind-Up
Voluntary wind-up: The employer or trustees decide to close the scheme — usually because the employer is replacing it with a new arrangement, merging schemes, or restructuring.
Compulsory wind-up: Triggered by employer insolvency, PPF assessment, or TPR intervention. The most significant for members because it raises questions about whether benefits can be paid in full.
Defined Contribution Scheme Wind-Up
DC wind-ups are generally straightforward:
| Stage | What happens |
|---|---|
| Decision to wind up | Trustees notify TPR; member communications begin |
| Transfer options | Members usually offered a choice of where to transfer their pot |
| Default transfer | If no action is taken, trustees transfer pot to an alternative scheme |
| Completion | Scheme formally wound up; all pots transferred |
Key point: Your DC pot is fully portable and remains yours. The wind-up simply changes where it is held, not the amount.
Watch out for: early exit charges (rare in modern DC schemes but can exist in older policies), and the fund range and charges of the scheme your pot is transferred to (compare before accepting a default transfer).
Defined Benefit Scheme Wind-Up
DB wind-ups are more complex and fall into two categories:
Employer Solvent — Fully Funded or Buyout
If the employer is solvent and the scheme has sufficient assets:
- Members receive their full accrued pension benefits
- The scheme typically buys annuity policies from an insurance company to secure future pension payments (known as a “buyout” or “bulk annuity”)
- Once secured with an insurer, your pension is as safe as an insurance company can make it (FCA and FSCS regulated)
Employer Insolvent — PPF Assessment
If the employer becomes insolvent and the scheme cannot pay full benefits, the PPF begins an assessment period:
| Member status | PPF payment level |
|---|---|
| Already at scheme normal pension age | 100% of pension |
| Below normal pension age at assessment date | 90% of pension up to the PPF cap |
PPF Cap (2026/27): Approximately £41,561/year for a 65-year-old (at 90% = £37,405/year).
Pensioners already receiving their pension receive 100% — only those not yet retired face the 90% cap.
What to Do If Your Scheme Is Winding Up
- Read all trustee communications — wind-up notices must explain your options clearly
- Do not ignore deadline letters — if asked to nominate a transfer destination, missing the deadline may result in a default transfer you did not choose
- Compare the transfer scheme — check charges, investment options, and governance
- For DB: obtain your benefit statement showing your accrued entitlement before transfer
- Get advice if in doubt — Pension Wise (free guidance for over-50s) and MoneyHelper can explain your options; independent financial advice may be worth paying for if significant sums are involved