A Pension Scheme Wind up occurs when the pension scheme trustees decide to close the scheme.
Reasons why trustees may decide to wind up a pension scheme
The following are the most common reasons why trustees might decide to wind up a pension scheme. There are other possible reasons, and sometimes more than one reason may apply.
- Agreement with the employer: The sponsoring employer may no longer be willing to support a defined benefit pension scheme, but may be willing to contribute to a defined contribution scheme. This may happen when the defined benefit pension scheme becomes too costly for the employer. The employer and trustees might at that point agree to wind up the defined benefit pension scheme.
- Financial problems at the employer: An employer in financial difficulty may be unable to honour its obligations to its pension scheme. In this event the trustees may be left with no option but to wind up the scheme
- Reducing scheme size: Sometimes a pension scheme may reduce in size and become too small to operate. This can happen if it becomes closed to new entrants and existing members are gradually retiring and/or dying. The trustees may in such an event judge it in the best interests of the remaining members to wind up the scheme
If your pension scheme is winding up, you will have a number of option that you can choose from. Some or all of the following choices may be available to you:
Take a refund of your contributions
Only an option if you have been a member of the pension plan for less than 2 years
Transfer to a new company pension plan
Transfer to a Personal Retirement Bond
Transfer to the Default Personal Retirement Bond
This is likely to happen if you do nothing
Transfer to a Personal Retirement Savings Account
This will only be an option if you have been a member of the plan for less than 15 years
This option will only apply if you are over the age of 50 and have left the employment of the company
Avail of a trivial payment option
This option may apply if your entitlements from the plan are relatively small
If your pension scheme is solvent and winds up, you should receive a full transfer value, as defined by Pensions Authority rules. The calculation of your transfer value is influenced by a number of factors, including your age and the level of benefit you had built up. Depending on the circumstances and on your choices, this value may be received as a transfer to a new pension arrangement, as a cash sum or as the basis for early retirement.
In some circumstances however, a pension scheme may be forced to wind up insolvent – i.e. with insufficient funds to meet all of its obligations to members. This normally happens when the sponsoring employer is in financial difficulty. In this event the scheme will not have enough money to honour its obligations in full.
Unfortunately, in some cases a scheme is so badly insolvent that the entitlements of active and deferred members have to be very significantly reduced to accommodate the pension scheme’s ability to pay.
It may be the case that you are leaving employment at the same time as your pension scheme is winding up. For more information on some of the issues surrounding this situation visit our Leaving Employment section.