Record £661m bailouts for pension funds that go bust

Failed pension schemes were propped up with a record £661m by the industry lifeboat last year, with successful small companies footing a huge chunk of the bill.

The Pension Protection Fund steps in to save schemes when they are facing collapse, meaning savers do not lose everything.

In the 12 months to March 31, it doled out £661.3m to 129,661 pensioners – up from £1.4m a decade ago when the PPF launched.

The vast payouts highlight the burden being placed on the PPF by firms which go bust. But there has also been growing concern that unscrupulous businessmen are letting firms fall into administration in the knowledge that the PPF will bail them out.

Last year’s record compensation bill included costs for airline Monarch’s pension fund, which had been bailed out with a £158m deficit. The carrier eventually went bust in October.

a total of 43 schemes began the process of being rescued by the PPF during the year, with new claims valued at £252m.

The annual compensation bill is likely to shoot up even higher next year as the PPF takes responsibility for some Bhs pensioners after the department chain collapsed with a £571m black hole in its scheme.

Tata steel is also restructuring its £15bn pension scheme, with the lifeboat scheme again likely to pick up some members.

The PPF rakes in cash from levies on 5,588 firms with final salary pension schemes, which guarantee savers a set proportion of their income when they retire.

since the lifeboat was set up, it has collected £6.3bn from businesses, including £1.1bn from small firms and those deemed least risky. The 100 biggest levypayers have handed over £2.5bn since the PPF’s launch.

But some small companies feel they are being punished for reckless behaviour by highly paid executives at household names.

Morris stevenson’s civil engineering firm southern Testing, in East Grinstead, West sussex, has a pension scheme with 20 members and has paid around £450,000 into the PPF since it was launched. stevenson, 63, said: ‘The amount we’ve contributed is very substantial.’

Jon Katzauer runs paper bag manufacturer Dempson in Maidstone, Kent. his scheme has 80 members and he pays a levy of around £50,000 a year.

The 51-year- old said: ‘I don’t begrudge the money that we pay into our pension fund at all. What I do begrudge is the money for the levy. It’s one of the most regressive and ill-conceived taxes I’ve come across.’

The PPF is considering changes to its pension levy which could see small firms’ bills cut by a third.

a spokesman said: ‘The pension protection levy is risk based.

‘This means that schemes pay a levy which reflects their individual risk of making a claim on the PPF. We continue to develop how we measure that risk, with our latest proposals launched in september.’