In the case of Bainbridge v The Sunley Turriff Pension Scheme, a member with DC only benefits lost all his pension when it was declared that the entire money purchase pot should go to satisfy defined benefit liabilities.
The Deputy Ombudsman found that although the money purchase section appeared to be separate from the final salary section in members’ booklets and in accounting, administrative and investment practice, the money purchase assets were not segregated from the final salary section.
Even though Bainbridge paid into the scheme on the basis that he was planning prudently for his retirement and had no reason to believe that his money purchase contributions could be used to make up a deficit in the final salary section, the priority order for debts meant he lost everything.
A spokesman for Pinsent Masons, the law firm says: “This current statutory priority order was introduced after the scheme entered windup and he would not lose out under today’s rules. But the priority order in the scheme rules can still come into play where there is a partial wind-up.”
Robin Hames, technical solutions director at PIFC Consulting says: “While the situation is less likely to occur for future wind-ups due to the current priority order, employers and trustees should really make sure they comprehensively review the protection afforded to DC members in these circumstances.”
