A new opinion challenging the level of compensation offered by the Pension Protection Fund could result in increased payments for members, it has been revealed.

The case of Grenville Hampshire v The Board of the PPF that has been heard at the European Union’s Court of Justice, considered the compensation cap on PPF payments.

The court was told that the PPF’s compensation cap for high earners is too low and that many people receiving compensation from the lifeboat are not entitled to inflationary increases as their pension was accrued before April 1997.

As a result, the ECJ advocate general noted that the cap and lack of indexation suggests that thousands of people in the PPF could be receiving compensation that is too low. The advocate general added that PPF members should not be receiving lower than 50 per cent of their entitled pension benefits, which has been highlighted by the case.

Hampshire initially brought the case to the Court of Appeal in July 2016, claiming that his pension was cut by 67 per cent when his company scheme was transferred into the PPF.

A PPF spokesperson said: “We note the advocate general’s opinion and await the outcome of this case with close interest. Members are currently receiving benefits from the Turner and Newall scheme at the levels set out in the Pensions Act. They can be reassured that this is the minimum that they will continue to receive.”

Prospect national official David Luxton commented: “At first glance this opinion seems like it could be very favourable for many Prospect members who have lost pension entitlement due to the insolvency of their employer and whose compensation from the Pension Protection Fund is very low. The cap has left many people facing hardship.

“Hopefully the court will endorse the minimum level of protection advised by the Advocate General so that pensioners who have already lost out significantly maintain a minimum level of compensation.”

Also commenting on the case, Lincoln Pensions managing director Alex Hutton-Mills said: “If it stands, this ruling could materially increase the size of the pension liabilities guaranteed by the PPF, and will present big questions over, firstly, how this should be funded and secondly the broader question of the fairness of the cap not applying to pensioners. Reducing the level of protection offered to pensioners and the benefits of lower earners could be politically unacceptable.

ARC Pensions Law senior partner Anna Rogers added: "The ECJ is likely to agree with the preliminary ruling and improve the rights of executives with big pensions that are currently subject to swingeing cut backs.

"The advocate general has said that it isn’t fair that the PPF compensation caps “establish a kind of general suspicion in respect of senior executives who have not yet attained the pension age… a general presumption of the existence of abuse is unlawful”.

The compensation cap is used to determine the level of compensation payable by PPF to members. The circumstances in which the compensation cap applies and how and when it should increase is set out in the Pensions Act 2004.

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