European Court: UK Pension Lifeboat Should Lift Compensation Cap

    Last Thursday, the Court of Justice of the European Union ruled that pensioners should receive a minimum of 50 percent of the value of their pension in the event that their employer eventually goes bust.

    The Pension Protection Fund (PPF), the pensions lifeboat of the United Kingdom, had imposed a cap for the compensation of employees who had lost their pensions when their employers went under at £35,000.

    The CJEU reviewed the case of Grenville Hampshire who lost approximately 67 percent of his pension when Turner & Newall,  his former company, entered insolvency.

    Last Thursday, it ruled that “every individual employee…is entitled to compensation of at least 50 per cent of the total value of his accrued rights or entitlements to old-age benefits in the event of the insolvency of his employer.”

    Currently, the PPF is 122.8 percent funded and has a surplus amounting to £6.7 billion. It has predicted an increase to its liabilities of at most one percent as a result of Thursday’s ruling.

    The head of policy at Hargreaves Lansdown, Tom McPhail, stated: “For now at least, the European Court continues to exert control over the UK, something for which some pension scheme members may now be grateful…The PPF’s healthy surplus means it can take this hit without materially weakening its funding position.”

    The head of pensions at law firm Irwin Mitchell, Martin Jenkins, predicted that there could be more challenges by people who have lost out following the insolvency of their organisations.

    Jenkins stated: “The pensions regulator now has this power to do deals whereby pensions are reduced and then go into the PPF so some people can suffer a double whammy.

    He added: “I have been contacted by someone who wants to start an action and I am sure most other lawyers in this area will have had similar approaches.”

    He continued: “It is one that will have some way to run yet as an issue.”