The Pension Protection Fund (PPF) has started to implement measures from a recent court ruling designed to protect its members.
The pensions lifeboat is putting in place an interim process to uplift payments, in which it will increase the level of its compensation payments to at least 50 per cent of a member's benefits.
This follows a ruling from the Court of Justice of the European Union (CJEU), handed down last month, which determined 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.
UK law already establishes that the pensions lifeboat will pay 90 per cent of a scheme member's benefits if they’re not retired when they are transferred into the PPF.
But there is a cap on the total amount to be paid each year – set by government – which is currently £39,000 at age 65. This means high-earners could end with a pension cut of more than 90 per cent.
Individuals who accrued benefits before April 1997 could also see large cuts because members receiving compensation from the PPF are not entitled to inflationary increases before that date.
With its new payments increase the PPF will consider the date the member started to receive their benefits, which will be valued from the same date.
"We anticipate that this will be a one-off change needing no further adjustment," it said.
To implement this change, the PPF has started to write to members it thinks might be affected by the judgement to confirm its records.
After that, the lifeboat fund will begin to contact members approaching retirement age, who it believes will be capped; schemes in assessment; and any other remaining non-capped members who may also be affected.
For those affected, the PPF "will work to implement the judgment as quickly as possible," it said.
The organisation has been working with the Department for Work and Pensions (DWP) about the changes that may result from this judgment.
"We expect the number of eligible members affected by this ruling to be very small," it noted.
The CJEU court case was brought by Grenville Hampshire, who 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. Its pension scheme entered into PPF assessment in 2006, after the company became insolvent.
According to 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 court ruled in his favour, stating that a body such as the PPF would be "seriously undermined" if individual workers were not given minimum protections.
Sir Steve Webb, director of policy at Royal London and former pensions minister, said it was "right and proper" that the PPF was putting in place plans to increase the pensions of those who have lost the most when their employer went bust.
He said: "Given the pressure on Parliamentary time, it could be months, if not years, before legislation could be passed to change the rules on PPF compensation.
"In the meantime, many of these workers would have to get by on far less than they had originally expected.
"It is good to see the PPF moving ahead and it is to be hoped that comprehensive legislation to address this anomaly will not be far behind."
maria.espadinha@ft.com
