Dwindling pensions pots
Don’t assume the Pension Protection Fund will deliver what you expect, says Paul Lewis
The final closure of 400 Wilko stores is scheduled for this month, and around 9,000 job losses are expected. But many former staff will also be worrying about their Wilko pensions. The fate of their retirement is now in the hands of the Pension Protection Fund (PPF), which was set up in 2005 to rescue the pensions of firms that go bust. Without the PPF they would probably get nothing, as workers did in the past. However, the pension they do get (called compensation) will be less than they would have got if Wilko had fulfilled its obligations and funded the pension properly.
The PPF looks after the pensions of more than 295,000 people whose employers ceased trading. People who had reached the normal pension age of their scheme are paid the full pension they were already getting – but those who have not reached that age will get only 90% of the pension they would have been paid.
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There is another, potentially bigger, restriction: the pensions are not fully protected against inflation The part due on contributions paid before 6 April 1997 is not raised with inflation at all, and the part due based on later contributions has limited protection. That part is raised from 1 January by the Consumer Prices Index the previous May, or 2.5%, whichever is the lower.
In May 2022, for example, the CPI rate of inflation was 9.1% but PPF pensioners got a rise of only 2.5%. And in 2024 their pensions will again be raised by 2.5%, not the 8.7% rise in the May CPI. That means a pension earned from 6 April 1997 that was £100 a month in 2022 should be over £118 a month from January but will in fact be just £105. That is worse inflation-proofing than many surviving pension schemes pay.
The PPF Board has the power to order a bigger increase than 2.5% but it has decided not to do that for 2024. If you get a PPF pension and are suffering from its declining value, it may be worth writing to the Board to tell it about your hardship: email resolutionsteam@ppf.co.uk
or write to PO Box 254, Wymondham, NR18 8DN and mark it “for the attention of the Board”.
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Paul Lewis presents Money Box on Radio 4. To read more of his advice, see radiotimesmoney.com QUESTIONS? Send any questions to Paul.Lewis@radiotimes.com.