PPF wins cap appeal but DWP challenge rejected

James Phillips reports

The Pension Protection Fund (PPF) can perform a single, ex ante calculation for compensation, but the result cannot be immune from challenge, the Court of Appeal has ruled.

In a court ruling on the compensation scheme’s cap, delivered today (19 July), the higher court allowed a PPF appeal and agreed it could adopt a value test for calculating compensation on a one-off basis, as long as it corresponds to at least 50% of a members’ pre-insolvency entitlement.

This compares to an a ‘lifetime payments test’, which would have required the PPF to continually calculate whether someone’s given compensation had fallen below the 50% threshold, particularly if they lived for longer than assumed.

It did not, however, give any view on the underlying assumptions used in the PPF calculations – including how finely tuned they must be to reality, or how broad or narrow any margin of judgment or discretion should be – as there had been no challenge in the appeal relating to these.

The Court of Appeal also rejected arguments from claimants that the same tests should be applied to survivor benefits, instead agreeing with the PPF that there “is no right to return to the drawing board and calculate the survivor’s compensation on the basis of the rules of the original scheme”.

The court case – The Secretary of State for Work and Pensions and the Board of the PPF vs Paul Hughes and others – is the latest instalment in a string of court cases that have challenged the way that PPF compensation is calculated and applied.

However, the court also rejected permission to appeal on two grounds from work and pensions secretary Thérèse Coffey, who had argued separately from the PPF that the original claim had been delayed and brought out of time and should therefore have been disregarded; and that the compensation cap was only subject to domestic law, meaning prior EU judgments and legislation did not affect this.

And while the Court of Appeal did allow Coffey’s appeal relating to whether the cap amounted to age discrimination, it immediately agreed with the High Court’s original judgment that it was, and dismissed the appeal.

The judgment therefore reaffirms that the compensation cap as set out in UK law was unlawful where members received less than 50% of their pre-insolvency entitlement – but gives some discretion to the PPF on how this is calculated.