Cap on pension compensation ruled unlawful

Cap on pension compensation ruled unlawful, European Court rules

The European Court of Justice has ruled that the cap on compensation payable from the Pension Protection Fund is unlawful

The Pension Protection Fund pays compensation to members of occupational pension schemes when the sponsoring employer can no longer support the scheme.

Scheme members who have not reached pension age generally receive compensation of 90% of their promised benefit from the PPF.

However there is an overall cap on the level of compensation that can mean that members with high earnings and long service can receive a much lower initial percentage of their promised benefit.

Pension increases throughout retirement are also capped by the PPF which further reduces the overall level of compensation payable.

The case of Grenville Hampshire v The Board of the Pension Protection Fund was referred to the ECJ by the Court of Appeal.

The Advocate General had previously advised that it is unlawful for an individual to receive less than 50% of the value of their accrued pension benefits and that the value of inflation increases must be reflected in any assessment of the level of compensation provided.

The case will now be referred back to the Court of Appeal but the PPF has announced that it will work to implement the judgment for members it considers to be affected as quickly as possible.

The numbers the PPF considers to be affected by the judgment represent a very small percentage of members.

Government and the PPF will consider the ECJ ruling and the final outcome of the case of Grenville Hampshire v The Board of the Pension Protection Fund before deciding whether legislation and/or PPF rules need to be amended.

Many Prospect members, including some who previously worked for Carillion and AEAT, are receiving compensation from the PPF but only a tiny minority will be covered by this ruling.

Prospect pension officer Neil Walsh said: “This ruling is welcome news for those who will be impacted by it. It is reassuring that the ECJ has interpreted the relevant European Directive to mean that every individual must receive at least 50% of the value of their accrued pension benefits.

“The immediate impact of the judgment might be fairly limited but it could prompt the Court of Appeal and others to look at the compensation rules more broadly.”