The Advocate General for the ECJ agreed that PPF members should not be receiving less than 50 per cent of their entitled benefits in the event of the insolvency of their employer, which is happening with some of the pensions lifeboat members.
The UK law establishes that the pensions lifeboat will pay 90 per cent of a scheme member benefits if they’re not retired when they are transferred into the PPF.
However, there is a cap on the total amount to be paid – set by government each year – which is currently £39,000 at age 65.
Which means high-earners could end with a pension cut much higher than 90 per cent.
Another way of getting an amount much lower than 90 per cent is if individuals accrued benefits before April 1997, since members receiving compensation from the PPF are not entitled to inflationary increases before that date.
Grenville Hampshire, who brought the case, saw his pension cut by 67 per cent when he was transferred to the PPF.
Mr Hampshire was employed by Turner & Newall (T&N) from 1971 to 1998. It’s pension scheme entered into PPF assessment in 2006, after the company became insolvent.
However, following an EU directive, member states need to protect the interests of employees in the event of the insolvency of the employer, with a previous court ruling defining that workers need to retain at least 50 per cent of their previous entitlement.
The ECJ opinion was that this 50 per cent cap should be respected, which means that if the court rules in favour of the plaintiff no PPF member can have a cut of their benefits superior to that percentage.
The ECJ is expected to present a ruling on this case in the upcoming months.
FTAdviser understands that from the current 250,000 members of the pensions lifeboat, only 500 have their benefits capped under the £39,000 rule.
And only some of these would be receiving less than 50 per cent of their previous benefits.
According to union Prospect, these will include members who previously worked at Carillion and AEAT, which was previously a part of the UK Atomic Energy Authority.
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.”
According to Ian Neale, director at pensions technical specialist Aries Insight, there is a high chance that the ECJ will rule in favour of the plaintiff.
He said: “The Advocate General opinion is usually very influential, the court isn't obliged to agree with it, but more often than not - certainly in at least 70 per cent of cases - the court has come to the same conclusion.”
The UK government will be forced to change the law to comply with the ruling, if it is in favour of Mr Hampshire.
Stephen Schofield, senior partner at law firm Pinsent Masons, argued that the decision could be applied with retroactive effects, and benefit all the current PPF members receiving benefits which are 50 per cent less that their original pensions.
He said: “It could be retroactive, because the court will be saying that the system has been flawed since the outset, so they will have to revisit pass payments as well.
“This only affects a relatively small number of people, but for those people it can be a significant amount.”
It is not expected that Brexit will have an impact on a change of legislation, if the PPF loses the court case.
Mr Neale said: “It seems to me extremely unlikely that any government would find it politically possible to do so [not comply with a ECJ rulling].
“The PPF was established in compliance with the insolvency directive. The general practice of the UK government at the moment seems to be to maintain compliance with current EU legislation as it is already established in the UK.”
maria.espadinha@ft.com
