Impact of Company Insolvency on Pension Schemes and Employee Benefits

Company insolvency is a challenging event that affects not only the business itself but also its employees, particularly concerning their pension schemes and benefits. Understanding the implications of insolvency on these aspects is important for employers and UK employees.

When a company becomes insolvent, its financial struggles can have various consequences for its workforce. Employees may face job losses, reduced benefits, and uncertainty about their future financial security, especially when it comes to their pensions. This article explores the impact of insolvency on pension schemes, redundancy payments, and other employee benefits, guiding what employees can do to protect their rights.

Company insolvency occurs when a business can’t meet its financial obligations, leading to potential outcomes such as administration, liquidation, or restructuring. Each scenario has distinct consequences for employees and their associated benefits.

Administration: A company enters administration when an insolvency practitioner takes control in an attempt to rescue the business or sell its assets.

Liquidation: Involves selling company assets to repay creditors before closing the business permanently.

Company Voluntary Arrangement (CVA): A formal agreement between a company and its creditors to restructure debt and avoid closure.

Each of these processes has implications for employee benefits, particularly pensions.

Beyond pensions, company insolvency can affect various employee benefits, potentially leaving workers in financial distress.

Employees may be entitled to statutory redundancy pay if dismissed due to insolvency. Claims can be made through the Insolvency Service’s Redundancy Payments Service. Employees with at least two years of continuous service are eligible. The amount is based on age, length of service, and weekly earnings (subject to a statutory cap).

Impact of Company Insolvency on Pension Schemes and Employee Benefits