European Court rules that UK pension lifeboat must lift compensation cap
The Court of Justice of the European Union ruled today that pensioners should receive at least 50 per cent of the value of their pension in the event that their employer goes bust.
The UK’s pensions lifeboat, the Pension Protection Fund (PPF), had capped compensation for those that had lost their pensions when their employers went under at £35,000.
The CJEU examined the case of Grenville Hampshire who lost 67 per cent of his pension when his former company Turner & Newall entered insolvency.
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It ruled today 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.”
The PPF is currently 122.8 per cent funded and has a surplus of £6.7bn. It has estimated an increase to its liabilities of one per cent at most as a result of today's ruling.
Tom McPhail, head of policy at Hargreaves Lansdown said: “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.”
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Martin Jenkins, head of pensions at law firm Irwin Mitchell, predicted that there could be further challenges by people who have lost out after their organisations have gone bust.
“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.
“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 added: “It is one that will have some way to run yet as an issue.”