How does insolvency affect pensions?

Employer insolvency and restructuring

Employers may provide pension benefits through occupational pension schemes or through arrangements with personal pension providers. Assets belonging to pension schemes are generally held separately from the employer's assets (usually under trust) and do not ordinarily form part of its insolvency estate or become available to its creditors.

Workplace pension arrangements generally provide either defined benefit (DB) or defined contribution (DC) benefits.

Under a DB scheme, members are promised benefits calculated by reference to a formula, commonly based on salary and length of service. The employer is responsible for funding those benefits and may have to meet any shortfall between the scheme's assets and the cost of providing them. An employer's insolvency can therefore give rise to a substantial statutory debt to the scheme under section 75 of the Pensions Act 1995.

Under a DC arrangement, members' benefits depend on...