I remember the day the factory two miles from my flat closed. The town had buzzed for decades around that site: shifts, school runs timed to the whistle, local shops that relied on paydays. When management announced the closure, the immediate worries were jobs and the local economy. But people I spoke to—friends, union reps, older neighbours—had another fear tucked beneath the headlines: what will happen to my pension?

That question matters because pensions are often the most important financial cushion people have. The short answer is: it depends. The type of pension, the employer’s obligations, and the protections in place all shape the outcome. Below I walk through the scenarios most people face in the UK, practical steps you can take, and the questions you should be asking your employer and trustee.

Defined benefit (final salary) vs defined contribution: the crucial distinction

One of the first things I ask someone in this situation is whether their pension is a defined benefit (DB) scheme or a defined contribution (DC) plan.

DB pensions promise a specific income in retirement, usually based on your salary and years of service. These schemes are employer-backed: the company (through the pension fund) bears the investment and longevity risk. If the employer goes bust, the pension scheme might be short of money—but there are protections.

DC pensions are pot-based: you and your employer pay into a fund that you then invest. Your retirement income depends on how much gets paid in and how well investments perform. If an employer shuts down, your DC pot is insulated from the company’s bankruptcy in the sense that the assets are usually held separately, but future contributions and any employer top-ups cease.

What happens to defined benefit pensions if the employer collapses?

If a company closes and its DB pension is underfunded, the Pension Protection Fund (PPF) can step in in the UK. I’ve spoken to trustees who treated a PPF entry as a relief—not perfect, but protective.

Key points about PPF and DB schemes:

  • If your employer becomes insolvent and the pension scheme can't meet its liabilities, eligible members may be transferred to the PPF.
  • The PPF pays compensation, usually less than the original promised pension for people below pension age. For those already above their scheme’s normal pension age, compensation is typically 100%.
  • There are caps and different percentage levels depending on circumstances—so the amount can be lower than what your scheme promised.
  • Trustees and the PPF have procedures and timelines; transfers aren’t instantaneous.

    • In practice, if you’re in a DB scheme at a company closing nearby, your immediate actions are to check communications from trustees, contact the Pensions Advisory Service or the PPF helpline, and review your annual benefit statement to understand your entitlements.

    What happens to defined contribution pensions?

    DC pots are usually held with a pension provider (for example, Aviva, Scottish Widows, Legal & General or workplace pension platforms). Those assets are legally ring-fenced from the employer’s creditors, so the pot itself isn’t swallowed by corporate insolvency. However:

  • Your employer’s contributions will stop on closure, which reduces the growth of the pot going forward.
  • If your employer offered a group plan with special terms or employer-tracked funds, you might need to move your pot to a new provider—administration issues can cause delays.
  • If your employer had matching contributions or bonuses (e.g., an extra percentage for staying a year), you could miss out on expected accruals.

    • What matters most for DC members is continuity and fees: transferring to a low-cost provider and consolidating small pots can prevent erosion of value over the long term.

    Redundancy, final salary members and early leavers: common outcomes

    When workers are made redundant because a plant closes, pensions interact with redundancy packages, notice pay and final salary calculations:

  • Final salary calculations: the pensionable salary used to calculate a DB pension usually includes pay up to the redundancy date. Ask trustees how they define final salary and whether any contractual caps apply.
  • Redundancy pay may be separate from pension entitlements. Statutory redundancy is outside pension calculations but some employers add pension strain payments if they offer early retirement.
  • Early retirement or ill-health: some schemes offer early retirement benefits or special provisions—check whether the scheme treats redundancy as grounds for enhanced pension access.

    • Practical steps I recommend if a major employer near you announces closure

  • Ask HR and the pension trustee for clear written information: type of scheme, funding status, projected benefits, and any planned consultations.
  • Request your latest benefit statement and diagrams that show how your retirement income is calculated.
  • Contact the Pensions Advisory Service (TPAS) or Citizens Advice for free guidance, and consider a regulated independent financial adviser if you have complexity (e.g., defined benefit transfer, large pots).
  • If you’re in a DC scheme, check fees and fund choices. Consolidate small pots if it reduces fees and simplifies management.
  • If made redundant, clarify whether the employer will pay pensionable pay during notice and whether redundancy triggers any scheme-specific enhancements.
  • Keep documentation of communications; trustee decisions and minutes can be relevant if the scheme later proposes cuts or transfers to the PPF.

    • Deciding whether to transfer a final salary pension

    This is a hot topic. I’ve interviewed advisers who warned people away from transferring DB benefits lightly—because you give up a guaranteed income for a pot that depends on investments and your own longevity. Yet some people transfer if they need flexibility or want to consolidate wealth.

  • Regulatory safeguards mean transfer advice for DB schemes must be given by an authorised adviser who will assess suitability. If you’re under 55 and considering a transfer due to a nearby closure, don’t rush—get regulated financial advice.
  • Evaluate your priorities: security of income vs access to capital, estate planning, and ability to bear investment and longevity risk.

    • Questions to ask your employer and trustees right away

  • Is our pension scheme fully funded? What’s the latest valuation and deficit position?
  • Will the trustees seek PPF assessment if the company goes insolvent?
  • How will redundancy or early retirement affect my pension? Are there special provisions for older workers?
  • For DC members: where are my contributions invested? What are the fees? Can I transfer my pot and how?
  • Who is the independent financial adviser for DB transfer requests, if applicable?

    • Simple comparative snapshot

    Scheme typeMain riskProtection if employer fails
    Defined benefitEmployer funding/insolvencyPPF compensation (subject to limits)
    Defined contributionInvestment performance; contribution stoppageAssets ring-fenced; pot remains but no new employer contributions

    If you’re reading this because your local plant is under threat, you’re not alone—and your pension is not necessarily lost. But the path forward depends on the scheme type, the trustees’ actions, and whether insolvency proceedings start. My practical advice: get the facts in writing, seek independent guidance if needed, and prioritise clarity—pensions are complex, and a clear picture beats panic.