What happens to my pension in liquidation?

can creditors take your pension ukIf a company goes through liquidation, the pension plan may be impacted. If the company has a defined benefit pension plan, the assets of the plan may be used to pay off the debts of the company, along with the other assets.

If the assets of the pension plan are not enough to fully pay off the debts, the pension plan may be underfunded. In this case, the pension plan may be taken over by the Pension Protection Fund (PPF), a government-backed organization that protects pension plans in the event of the bankruptcy or liquidation of the company.

If the PPF takes over the pension plan, it may pay a portion of the promised benefits to the pension plan beneficiaries, but the amount may be reduced if the plan is underfunded.

Should the company have a defined contribution pension plan, such as a 401(k) or a profit-sharing plan, the assets of the plan should not be affected by the liquidation of the company.

In the midst of your immediate concerns, you should also look further ahead and consider what this means for your pension. As an employee it is likely that your employer was deduction a portion of your wages each month and, along with their own contribution, placing this money into a workplace pension scheme.

As this happened automatically and was done on your behalf, it may well be the case that you have little knowledge about how much money was in your pension pot or even who the pension provider is.

Is my pension safe if my employer goes into liquidation?

If your employer goes into liquidation, the safety of your pension depends on the type of pension scheme you are enrolled in. If you are in a defined benefit (DB) scheme, your pension is backed by the Pension Protection Fund (PPF), which provides compensation to members in the event of their employer’s insolvency. However, the compensation is capped, and you may not receive the full amount of your pension.

If you are in a defined contribution (DC) scheme, the funds are held in a separate account and are not affected by your employer’s financial situation. However, if your employer is the scheme’s trustee, they may not have the funds to pay your pension when you retire. It is important to regularly check the financial health of your pension scheme and consider seeking financial advice if you have concerns about its security.

The consequences vary depending on if you are a part of a money purchase scheme or a salary related scheme. A money purchase scheme (also known as a defined contribution pension scheme) is one where the money put aside for your pension is split into contributions, which have been agreed by yourself and the employer.

This compares to a salary related scheme (also known as a defined benefit scheme) which is when your pension is paid in relation to the salary you will earn when you retire. The latter of the two is less common nowadays, due to the high risk and cost upon the employer.

If you were a part of a salary related scheme, the value of the pension would be defined by your length of service, age at retirement and the final salary level, not the total contribution over the years.

What is the Pension Protection Fund?

The Pension Protection Fund is a public corporation which sits within the Department for Work and Pensions.  It pays compensation to people who have a defined benefit or final salary pension with a company that has gone bankrupt.

The Pension Protection Fund will become involved where there are insufficient assets in the pension scheme to cover Pension Protection Fund levels of compensation. Companies with defined benefit pensions schemes that become insolvent can apply to have their pension schemes considered for PFF compensation if they meet the relevant rules – this is known is the ‘assessment’ period

Defined contribution scheme

Defined contribution schemes, also known as money purchase schemes, are commonly used in the workplace. With this type of pension, member benefits at retirement depend on the scheme’s performance over time, the level of contributions overall, and the charges made.

No financial risk is taken on by the employer in this instance, as the scheme is not directly associated with the company.

What happens to defined contribution pension schemes in liquidation?

When a company providing this type of workplace pension enters liquidation there’s no direct impact on the pension scheme as a whole and individual pension funds, as the scheme is administered outside of the company and is not directly connected.

In some cases a company approaching insolvency may fail to send contributions to the pension scheme because of their financial position, but employees can make a claim for unpaid contributions from the National Insurance Fund (NIF) on being made redundant.

Defined benefit scheme

Also known as a final salary scheme, a defined benefit pension provides an income for life and members receive a fixed sum each month on retirement. The scheme doesn’t rely on the underlying investments’ performance, as is the case with a defined contribution scheme.

Defined benefit schemes are relatively rare these days given their cost to run, and the fact that the employer takes on a high financial risk. The final payments are calculated using each employee’s length of service, their final salary, and the age when they retire.

What happens to defined benefit pension schemes in liquidation?

If your company runs this type of pension scheme and it can’t meet its pension obligations to current and former employees, the Pension Protection Fund (PPF) is there as a safeguard. The PPF receives regular contributions from companies that run these types of pension.

PPF benefits differ from regular scheme benefits and depend on members’ ages. Any member over the scheme’s normal pension age will receive full payment but there’s no increase on pre-1997 pensions while post-1997 pensions will increase in line with inflation up to 2.5% annually. 

In the event of a company’s liquidation it covers pension payments in full for former employees who have already retired, and up to 90% of the value of the pension for yourself and other employees who are yet to retire.

Workplace pensions are complex, and may be subject to rules laid down within each scheme. This is why it’s important to seek specialist advice if your company is experiencing financial distress.

What is the fraud compensation fund?

If your employer went bust and the value of the pension fund has lost money because of dishonesty or fraud, there is a separate fund to pay compensation.  This is called the Fraud Compensation Fund. It covers most workplace defined benefit and defined contribution pension schemes (but not personal pensions or the state pension).

Read more: Can’t afford to pay company pension contributions

Read more: What is a employer financed retirement benefit scheme


Can you lose your pension if company goes bust

If your employer goes out of bust, for example, it goes into administration, receivership or liquidation and can no longer pay its pension contributions, the scheme you’re in is separate to the company's assets.

What happens to your pension when a company goes into liquidation?

If the company you work for goes into liquidation the pension scheme is not affected as the scheme is independent and has no direct connection to your employer's situation.

How are unpaid employer or employee contributions to a pension scheme dealt with on insolvency?

Any money an employer has deducted from an employee’s benefits for the purposes of paying into their pension scheme in the 4 months before insolvency will rank as a preferential debt to be paid into the scheme through the insolvent company’s assets.


In the event of liquidation in the UK, an employee’s pension will typically be protected by the Pension Protection Fund (PPF). The PPF is a government-backed organization that provides compensation to members of eligible defined benefit pension schemes in the event that the employer is unable to meet its pension obligations.

If a pension scheme is eligible for PPF compensation, the PPF will take over the scheme and provide compensation to its members, subject to certain limits and conditions. However, it should be noted that not all pension schemes are eligible for PPF compensation and some members may not receive full compensation for their pension benefits in the event of liquidation.

Steve Jones Profile
Insolvency & Restructuring Expert at Business Insolvency Helpline

With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.