EU court confirms lifeboat fund must amend compensation limit [updated]

The UK’s Pension Protection Fund (PPF) must ensure all of its members receive at least half of the defined benefit (DB) pension they were promised before their employer went bankrupt, according to a European court ruling today.

The European Court of Justice (ECJ) ruled this morning in line with a legal opinion published in April by Advocate General Juliane Kokott on the case of Grenville Hampshire versus the board of the PPF.

The ECJ said the EU’s rule regarding pension compensation “must be interpreted as meaning that every individual employee must receive old-age benefits corresponding to at least 50% of the value of his accrued entitlement under a supplementary occupational pension scheme in the event of his employer’s insolvency”.

Currently, the PPF pays 90% of the pension entitlements of DB scheme members when their employer goes bust. Those who have already retired receive 100%, but may face limits on inflation-linked uplifts.

The lifeboat fund also applies a limit on annual compensation for members that chose to take early retirement.

Hampshire launched his case after his expected annual pension was slashed by 67% following the insolvency of Turner & Newall, formerly a manufacturing business, and the transfer of the plan to the PPF’s assessment period.

Today’s ruling cannot be appealed, so the PPF must now discuss with the government’s work and pensions department about how to implement it. A spokeswoman for the fund said this process had already started.

The PPF said that the “vast majority” of its members already received more than half of their accrued benefits, meaning “less than 1%” were expected to be eligible for an increase. This would push its liabilities up by at most 1%, the fund said.

As of 31 March 2018, the PPF had total liabilities of £29.6bn (€32.9bn) but assets worth £36.3bn, meaning it was 122% funded.

The spokeswoman added: “We will work to implement the judgment as quickly as possible but first need to consider the judgment further to understand what action we can take prior to legislative change and the conclusion of the UK court proceedings. 

“Members can be reassured that we will update them further as soon as we are able.”

The headline for this story was updated on 6 September to clarify that the compensation limit will not be scrapped following the ECJ ruling.