By Malcolm McLean Chief Executive of the Pensions Advisory Service

Just how safe is your company pension? This is a question many employees have been asking in recent months in the wake of the publicity given to some fairly high profile cases where a final salary scheme has been closed down and there have been inadequate funds available to meet all the pension requirements of members.

The lack of clear progress in this area is a source of frustration Malcolm McLean

Two cases in point are the steelworkers at Allied Steel & Wire and the former employees of a British company acquired by the Danish shipping giant Maersk.

In both instances - and for different reasons - some scheme members face the possibility of losing 50% or more of their pension benefits.

The Government's Green Paper 'Simplicity, Security and Choice' acknowledges there are problems attached to the existing arrangements for scheme wind-ups and puts forward a number of options for discussion.

There are no firm decisions, however, and the lack of clear progress in this area is a source of frustration for the people directly involved and many others who are becoming increasingly worried at stories they hear about lost pension rights and distress and hardship.

We in the Pensions Advisory Service (Opas) have already drawn attention to problems in our last two annual reports.

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Since then, the potential difficulties are becoming increasingly exacerbated by the continuing falls in stockmarket returns, leaving more pension schemes facing a shortfall.

Urgent action is required in the face of falling consumer confidence in the pension system as a whole.

Two scenarios:

There are two distinct situations that need to be addressed. The first concerns the scheme wind-up where the employer is solvent but has decided that he no longer wishes to contribute to the scheme.

The second is where the employer has become insolvent and in consequence arrangements have had to be put in place to wind up the scheme.

The MFR is a wholly discredited arrangement Malcolm McLean

Solvent Employers: Under the present Government regulations an employer has to make good a funding shortfall in the scheme's assets only up to the level of the Minimum Funding Requirement (MFR).

The make-up and purpose of the MFR is such that this will always be inadequate to provide all the members with the benefits they would have otherwise been entitled to.

This situation when applied to a wind-up is quite illogical and basically unfair.

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Insolvent Employers: As there is no employer in place to make good any funding shortfall it may not be possible in the final analysis to guarantee absolute security of members' pension rights in all cases. However, there are things that can and should be done.

Firstly, it would help the situation considerably if there were a proper and meaningful funding requirement in place for all schemes - thus, hopefully, reducing the potential shortfall in the funds available when the scheme goes into wind-up.

We need to encourage people to have a pension plan - not frighten them away.

The existing centrally prescribed priority order for the distribution of the available funds is clearly unfair.

Pensions in payment always come before those of existing workers and other deferred members.

This can mean that those close to retirement may receive little or no pension benefits despite having contributed to the scheme for 30 years or more.

We must hope the responses to the Green Paper spur the Government on to introducing whatever changes need be made to rectify the present most unsatisfactory situation.

It is important that members of final salary arrangements - the so called Rolls Royce of pension schemes - feel more confident than many do at the present time about the security of their company pension. Otherwise, why would anyone want to be in such a scheme?

We need to encourage people to have a pension plan - not frighten them away. It is fundamental that the issue of the security of pension benefits is sorted out - and soon.