PensionsJan 3 2019

Pension lifeboat changes payments after court ruling

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Pension lifeboat changes payments after court ruling

The Pension Protection Fund (PPF) is hoping to uplift the first set of payments to its members affected by a European court ruling by the end of April.

This follows a ruling from the Court of Justice of the European Union (CJEU), handed down in September, which determined that PPF members should not receive 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 are not retired when they are transferred into the pensions lifeboat.

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.

In an update on its website in December, the PPF said that it was hoping to start making payments in January for the first group of members – those most affected who have a long service cap in place - finishing this batch by April.

Introduced in 2017, this cap increases the standard compensation cap by 3 per cent for each full year of pensionable service of more than 20 years, subject to a maximum of double the standard cap.

PPF and Financial Assistance Scheme (FAS) members who are subject to the long service cap and who the pensions lifeboat thinks are affected by the ruling have be written to, asking them to supply certain information.

Although the organisation holds information to calculate PPF benefits and FAS assistance under the existing legislation, it doesn't have all information about members’ original scheme benefits, the PPF stated.

Once the uplift payments for this group has been concluded, the pensions lifeboat will start to look at both PPF and FAS capped members, learning any lessons from the previous phase, it stated.

The PPF will try and obtain data from sources such as the previous scheme administrators, and only write to members if it is absolutely necessary, a spokesman for the lifeboat added.

However, this group of members is likely to be more complex administratively to handle so will take longer to finalise, it noted. The PPF currently expects to conclude this phase in the summer of 2019.

The lifeboat is also looking on a case by case at members who are approaching retirement and are likely to be capped, to see if an adjustment is necessary.

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.

maria.espadinha@ft.com