What happens if a pension scheme is completely wound up?

This depends on the kind of pension it is, whether it is contracted out or not, and why it is being wound up. Winding up usually occurs when:

• an employer goes bust 
• an employer is taken over
• an employer decides they no longer wish to run it.

This answer provides an overview about scheme closures in solvent companies.

All pension schemes will have procedures for winding up in their basic rules – the trust deed. These – and additional legal requirements – must be followed.

Since 2003 there have been new rules to provide extra safeguards for members of salary related schemes whose employer wants to wind up their scheme when they are not going out of business.

The employer must buy out benefits in full. In other words there must be new arrangements made that guarantee that you do not lose any of the benefits you have already built up from the scheme winding up. This removes any incentive for employers to close a scheme purely to get out of fulfilling their pensions promise.

Money purchase schemes

In a money purchase scheme, each member will have an individual pension pot. When the scheme is wound up, this will be invested in an alternative pension. None can be taken as cash. It must all be put into a pension arrangement of some kind.

This could be another money purchase pension, or your pension pot could be used to buy a deferred annuity. This is like any other annuity, but you will not start to get paid until you reach retirement age.