ECJ rules PPF compensation must amount to 50% of members’ benefits

by James Phillips

The Pension Protection Fund (PPF) must ensure it pays out at least 50% of individual entitlements to members whose funds were absorbed into the lifeboat fund, the European Court of Justice (ECJ) has ruled.

In a judgment handed down this morning (6 September), the ECJ said current compensation levels were not always enough, heeding the official opinion of one of the court’s advocate-generals that PPF benefits were “unlawful”.

While benefits for non-pensioners are capped at 90% of £39,006, with no indexation link granted to pre-1997 benefits, this is illegal if it amounts to less than half of the members’ original entitlement, the ECJ ruled.

It can also effect members of schemes who had post-1997 benefits linked to the Retail Prices Index (RPI); in the PPF, these benefits are uprated in line with the Consumer Prices Index (CPI).

PPF member Grenville Hampshire, who brought the case, was forced to accept a 67% cut to his pension entitlement when his former employer, Turner & Newall, went insolvent in 2006, prompting an assessment period for the company’s scheme. This saw the value of his pension reduce from £76,302 to £19,189 per year.

The judgment will have a resounding impact on the level of compensation the PPF members will receive, and could also affect schemes which wound up outside of the lifeboat fund with PPF-level benefits.

PPF liabilities

Although the number of people who will be impacted by the judgment is expected to be small, impacting PPF liabilities by an estimated total of 1% or circa £215m, the lifeboat fund will be required to recalculate the benefits it has paid.

A PPF spokesperson said the lifeboat had been in discussions with the government to consider what changes will be necessary for PPF and Financial Assistance Scheme (FAS) compensation.

“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,” they said.

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

The matter was referred from the Court of Appeal and will now be remitted back to the court to end UK proceedings, at which point the PPF will be expected to implement the necessary changes.