http://news.bbc.co.uk/1/hi/business/8539465.stm

This will be a huge story in the next few years as companies find that the pension funds are exhausted. Though personally until the companies have repaid all the contributions that they failed to pay in during the pension holidays then the companies should pay up.

How legal/doable would it be to have companies that go into administration forced to pay out on pensions once everything left is sold off?

The problem is that the hierarchy of debtors. First come staff and tax man, then secured creditors and then unsecured creditors. Pension funds would be unsecured. Then you get the situation that many companies have multiple pension funds, usually one for directors and one for the staff. The problem is that it is only the staff pension fund that is in trouble. Directors funds are usually fully funded. If companies were banned from having separate directors pension funds then maybe they would make sure that the pension fund was fully funded.

You missed teh administrators


You bet they would.

They should change the law on that. Pension funds should be protected. After all, that's not the company's money, it's the employees.

Pension funds are protected to a certain extent (clickey).
I thoroughly agree that directors and staff should have the same pension pot to prevent directors from raiding the company pension for their own ends if that's how the company's pension provision works. However I think you'll find that a lot of directors have a contribution for a pension paid to them rather than it being paid into the pension scheme (i.e. they sort out their own pension with the money they are given). I'd certainly support legislation forcing all company directors to have to use the same pension scheme as employees but I doubt that would be workable as it relies on the director being UK based for tax purposes. Plus it would represent a significant change to their terms of employment that you can bet they'd resit tooth and nail.

Pension funds are protected. What is in already is safe, but if the company have not paid their and the employees contributions into the pension fund then these could be used to pay secured creditors.

My idea to have a single pension was to avoid the case of Rover where the directors pension fund was fully funded but the staff fund was significantly underfunded. Leaving the tax payer to pick up the bill for making good the fund.

Yes but directors have access to company accounts and as such if the company is in trouble they will fund their own pension and ignore the staff pension fund. This means that if the company collapses the staff are out of pocket. Also directors should only get tax relief on the company scheme. If they make additional voluntary contributions elsewhere they should lose tax breaks on any contributions.

I would also add a one year delay before directors pensions are guaranteed. There was a steel company Allied Steel and Wire which the directors all retired and placed the company into administration on the same day. They as retirees had guaranteed pensions and effectively safe. Those who had not retired found that the pension had insufficient funds to cover their pensions. In my scenario these directors would be in the same situation as the rest of the employees. They could get their pension from the fund but if the company collapsed within a year of their retirement then it is cancelled and they are immediately in the same situation as the rest of the staff.

Actually it could be made workable by making it a condition of operating here. All UK companies are to have a UK based pension fund, and any directors even those from overseas must have their pension within the fund. These could be transferable only if the director leaves more than a year before collapse. If the directors refuse such rules then if they are overseas then the government could withdraw their work permits. The technical details are minor and could easily be achieved.

A final reform could be the mandatory breaking up of funds into separate annual pots. For example at the moment all funds are held as a single pot, this means that they invariably hold a lot of shares and then buy annuities for those that have retired. This makes them vulnerable to stock market crashes. If the funds are treated as separate pots will rules regarding holdings of stable investments such as bonds in years close to retirement would apply. Then if the stock market crashes as happened two years ago then many people close to retirement can find that they have not had a large chunk of their retirement pot wiped out by the crash, because their pots will have been mainly bonds, with less volatile shares in the pot. Those who are younger and can afford a crash can still make up the difference over their working life. The annual pots could include everyone retiring in a particular year.

I like your thinking Amnesia10.

Of course, this only really applies to final salary/defined benefit schemes.
They aren't as common as they were and becoming rarer.

Defined contribution schemes as pretty rubbish by comparison but are what a lot of people (myself included at the moment) are stuck with.

Even being brain damaged has not hampered my analytical thinking.


I would ban final salary schemes and replace them with average salary schemes. This would only harm those who had a large increase in pay on the final years. You can see it being abused in company boards when a director who is about to retire has their salary increased by a substantial amount. That is the amount that their pension is based on, yet their contributions are insufficient to fund such a pension so it is in effect subsidised by the rest of the still to retire staff. Very unfair.

Also mandate a minimum contribution by employers, say 15% of salary. This would eliminate the differences between defined benefit schemes and defined contribution schemes.


Yes but mandatory minimum contributions would eliminate that difference.

My last idea which went down well with my MP was mandatory capital protected annuities. The benefit of this is that current when a pensioner dies the balance of the annuity becomes the property of the insurance company. if they were capital protected then when the pensioner dies they can gift their pension fund to their partner children grandchildren etc. This would mean that while their pensions were lower they could still leave something for the family even if they cannot leave a house or anything else. These pension funds would only be allowed to be transferred to another pension but if you found that a relative left you a sizeable pension fund that boosted your own pension then you would be quite happy.