- European Court recommends better protection for workers’ pensions.
- Landmark ECJ ruling finds PPF cap unlawful – workers must not lose over half their pension.
- Small number of people affected, but hugely important to each one of them.
- PPF (and FAS) compensation will improve, but 1% impact on funding shouldn’t affect PPF levy.
Nobody should lose more than half their pension: A landmark ruling from the ECJ today has confirmed that the protection of UK workers’ pensions is inadequate. Pension Protection Fund (PPF) rules must be changed, to ensure no worker can lose more than half their promised pension.
PPF cap was unfair on long-serving senior workers: I welcome this decision. Until now, the PPF only offered compensation up to a capped amount. This meant long-serving senior workers, with pensions paying over £39000, had their payments cut back to the cap if their employer scheme failed.
Only a small number of people: Although today’s verdict will only affect a small number of people, to each of those members it will be hugely significant. Grenville Hampshire, who was forced to fight in the European Courts after losing 67% of his pension, will at last get more pension and also receive back payments.
1% increase in PPF liabilities: Because this affects such a small proportion of members, it will not place a big strain on the PPF. They estimate the ruling will increase PPF liabilities by around 1%. This should not impact levy payers, in view the PPF being in surplus.
Financial Assistance Scheme members to benefit too: The DWP funds the Financial Assistance Scheme (FAS) and will have to alter these payments too. The FAS resulted from a bruising, hard-fought, campaign which I helped to lead, entirely unpaid, for many years, alongside brave scheme members who faced losing their entire pension. Having helped to get the PPF introduced in 2004, it offered nothing at all to those whose schemes failed before this. Yet, those 150,000 people had been assured by Government that their pensions were safe and protected by law after the 1992 Maxwell scandal. Following our successful appeals to the Parliamentary Ombudsman, Public Administration Select Committee, High Court and Court of Appeal, the DWP in 2007 finally agreed to fund the FAS to mirror PPF benefits. Some of those victims should also benefit from today’s ruling.
So what are the implications?
- The UK courts will now rule on how compensation should be calculated in future and I how any Arrears and retrospective payments should be dealt with.
- The Government must introduce Primary legislation which will potentially affect all pension schemes, as they will need to adjust the way they calculate their PPF funding levels.
- The PPF will have to adjust its compensation calculations, so that the cap does not operate as a fixed monetary amount, but is set to ensure the percentage of pension replaced is at least 50%.
- It is not clear what will happen to schemes which have already secured annuities for members above the current PPF benefit levels, if some members will end up losing more than half their pensions.
- Pension calculations are always complex, but this new requirement will add extra complexity to PPF and FAS compensation, because the compensation only pays inflation-linking based on pensions built up after 1997 and using a cpi index, while most pension schemes used rpi inflation for annual increases.
- A few pension schemes with a large number of highly paid, long-serving members may find their funding levels require extra contributions, but this is unlikely to affect many, if any, schemes materially.
Good day for pensions justice: The cost and numbers of people affected are much larger than they would have been if the Government had accepted the ruling of the EU Advocate-General that said pension compensation needed to be over 50% some years ago. It seems a shame the members had to fund and pursue their case in the European Court. Nevertheless, they will be pleased they have won.