The Pensions Protection Fund (PPF) must pay at least 50 per cent of members pensions entitlement to individuals whose employers have fallen into the fund, the European Court of Justice (ECJ) has judged.
In a ruling delivered today, 6 September, the ECJ said that it was not right for employees to receive less that 50 per cent of their accrued pension savings in the event its employer became insolvent.
Currently, employees who have not yet reached pension age are entitled to up to 90 per cent of their accrued benefits, but are not offered inflationary increases, for this to fall below 50 percent would be illegal, the ECJ has ruled.
Commenting on the ruling, a PPF spokesperson said: “We note the judgment of the Court of Justice of the European Union today and are considering it.
“We have already been in discussions with the Department for Work and Pensions about what changes to PPF compensation and FAS assistance will now be required.
“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 PPF aded that is expects the ruling to increase its liabilities by 1 per cent. It is currently 122.8 per cent funded and has a surplus of £6.7bn.
Grenville 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.
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.
Royal London director of policy, Steve Webb, said: “Given that Pension PPF has spoken about what to do with its surplus funds a priority must be given to address the position of people such as Mr. Hampshire who could find themselves receiving less than half their pension due to the limited nature of the PPF.”
Law firm Clyde & Co head of pensions, Mark Howard, said the ruling would effect close to 1,200 individuals, who would be compensated for their “significant underpayment of benefits”.
"The most significant part might be the decision that the valuation of members' benefits should take full account of the increases they would have earned from the scheme – rather than increases earned after 1997,” he added.