Flaw uncovered in pension protection law

The Government was urged today to change the law to ensure pensions of all workers are protected if their employer goes bust.

The Pension Protection Fund was set up in 2004 to provide a safety net to people who lost their retirement savings as a result of their employer going bankrupt.

But it has recently emerged that members of the George and Harding pension scheme have been refused entry to the PPF due to a flaw in the wording of the 2004 Pensions Act.

The scheme does not have enough money to meet the pensions of workers who have not yet retired, meaning they face losing their retirement savings.

Although the problem currently affects only the 40 members of the George and Harding scheme, pensions expert Ros Altmann warned it could affect many more people in future.

Dr Altmann, who is director general of Saga, said: "I thought we had seen the end of this terrifying threat but now I discover that flaws in the 2004 pensions legislation means the nightmare has returned.

"This is really serious and we are demanding immediate action from the Government. MPs from all parties must be told that the future for many of their constituents could be in peril unless Parliament acts now."

The problem has been caused by the legal definition of the word employer used in the legislation relating to the PPF.

George and Harding was taken over by a firm called Zejwa in 2002, and at the time the pension scheme was already closed.

Zejwa went insolvent in 2009, but despite the fact the group had paid contributions into the scheme and covered the annual PPF levy, which is paid by all firms with a defined benefit pension, because the scheme was already closed in 2002, Zejwa is classed as the principle employer not the statutory employer.

As a result, the scheme does not qualify for membership to the PPF, although the fund has offered to refund the levies paid by Zejwa to the trustees.

Dr Altmann has called for a legislative amendment to be made to ensure that other pension schemes are not excluded from the PPF due to this technicality.

The call is being supported by the PPF, which has also highlighted the problem to the Department for Work and Pensions.