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Daily Mirror
Daily Mirror
Business
Sam Barker

How safe is my pension pot as the Bank of England pulls emergency help?

Pension funds came close to collapse following the fallout from the Government's recent Mini-Budget - with many saved by emergency action by the Bank of England.

But the good news is that whatever happens, your pension should be protected.

What happened was Chancellor Kwasi Kwarteng's Mini-Budget last month sparked a mass sell-off of gilts, or Government bonds, by pension funds.

Pension funds are the firms that invest our money to give us a retirement pot.

The gilt sell-off took place because international markets believed there would be an increase in UK national debt to fund the Government's tax-cutting plans.

The price of gilts fell, which led pension funds - which own lots of them - selling them off to raise money.

But that was still not enough to keep many of them stable, and many faced collapse.

Your pension will be protected even if a pension fund fails (Getty Images/iStockphoto)

The Bank of England was forced to step in to buy up Government bonds to keep prices up. That support is coming to an end today.

But your pension will be safe - even if a pension fund does collapse.

The bad news is you might not get all of your money back. It all depends what sort of pension you have.

If you are in a defined contribution (DC) pension scheme and invested in a diverse range of assets around the world, the current crisis should have a limited impact, according to Tom Selby, head of retirement policy at AJ Bell.

Most workplace pensions are DC schemes.

If your DC pension provider was authorised by the Financial Conduct Authority and cannot pay you, you can get compensation from the Financial Services Compensation Scheme.

But if you have a self-invested personal pension, or SIPP, that falls to up to £85,000 per person.

Mr Selby said: "While your fund will rise and fall, particularly over the short-term, keep in mind that a DC pension is a long-term investment.

"Provided your pension investments are diversified, what is happening in UK bond markets shouldn’t be a big cause of concern."

If you’re a member of a defined benefit (DB) scheme, your pension should still be paid in full - as long as your employer doesn't go bust.

It is ultimately down to your employer to make up any shortfall in your pension.

Selby added: "The key thing to remember with a DB pension is that it is the strength of the employer that matters, rather than the performance of investments held by the pension."

If the company you work for does go under, you should receive a substantial amount still through the Pension Protection Fund.

The PPF will compensate you for 100% of your pension if you've already reached the scheme's retirement age - or 90% if you haven't reached retirement age.

For most private or workplace pensions, the Financial Services Compensation Scheme (FSCS) guarantees 100% of your pension if a fund goes bust.

The state pension is not affected.

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