Pension Led Funding (PLF) can be a very useful tool to help business owners grow both their business and their pension funds at the same time although due consideration needs to be given to the potential downsides of entering into such an arrangement.
The value of a pension scheme is linked to the performance of the assets that are held in it. If the pension fund is invested in assets that perform poorly or lose value this is directly reflected in the value of the pension fund and could impact its ability to pay a retirement income at the time it is needed. If a pension scheme is invested in a company, and the Company defaults on its obligations, this could lead to a reduction in retirement provision.
Pension schemes are outside of the scope of creditor claims and are therefore, in the event of a corporate insolvency or bankruptcy, protected (as long as a pension scheme hasn’t been deliberately used to deprive creditors of assets). If a PLF arrangement has been used, and the Company fails, a valuable safety net may have been lost.