UK - Scheme members could still lose most of their pension pots unless any protection fund is underwritten by the government, experts warn.
They believe the government’s Pension Protection Fund – which was, as widely anticipated, announced in the Queen’s Speech – could face its own cash crisis without state backing.
And if that happened, members could be left with as little as 10% of their pension pots.
Scottish Equitable director of pensions development Stewart Ritchie said: “The problem is that, given the fact that the government is not going to underwrite the scheme and the amount raised in levies is limited, the PPF at some point will have a finance crisis.
“If this happens, members’ benefits could be significantly reduced. Therefore, the government should not talk about offering guarantees.”
Mercer Human Resource Consulting senior research actuary Deborah Cooper agreed and felt the level of protection may have been “oversold”.
She added: “Members could end up losing out and receiving just one-third of their pensions. If the levy is priced too low at the start, members who thought their benefits were protected under the fund will receive less.”
She said it could otherwise lead to a price hike for employers or taxpayers.
Partner at law firm CMS Cameron McKenna Mark Grant warned: “We could see members losing one-third or one-half of their benefits even if they are in the PPF.”
And Liberal Democrat work and pensions spokesman Steve Webb said the PPF – which is scheduled to be introduced in April 2005 – offered “false hope”.
He said: “Workers need confidence that any PPF won’t go bankrupt when company schemes fold. It would be criminal if the insurance scheme meant to secure pensions went to the wall.”
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