The Pensions Protection Fund would call for a broader review of how pensions are regulated if it is forced to pay out 100 per cent of benefits, its chief financial officer has said.
Andy McKinnon told FTAdviser the PPF would not be able to absorb measures proposed by the advocate general of the European Court of Justice, who stated lifeboats should pay full benefits in the case of a defined benefit scheme sponsor going bust.
The measures were proposed in an opinion piece around the Pensions-Sicherungs-Verein VVaG v Günther Bauer case, a court case that relates to the German equivalent of the UK pensions lifeboat.
In the piece advocate general Gerard Hogan argued that member states should provide full employees' pension entitlements when following the EU Insolvency Directive.
Under this rule, member states need to protect the interests of workers in the event of the insolvency of the employer.
Currently, the PPF is changing the way it calculates its members pension entitlement, following a ruling from the ECJ on the Hampshire case, handed down in September.
This 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 see a big pension cut.
Mr McKinnon said: "It's not a great secret that if 50 per cent became 100 per cent it would impact a great deal more members, and we would have to think slightly different on how to go about it.
"We wouldn't be able to absorb that kind of increase within the current balance sheet.
"If our job did become to fully underwrite every scheme, then you would a need a slightly broader review of how pensions are regulated to address that."
He noted that the PPF hasn’t made any kind of provision for this case.
He added: "As an historical trend, one in five cases actually don't agree with the advocate general opinion, but even if it does, how the whole pensions landscape might have to respond to it will depend on exactly what is said."
PPF has set aside £300m to increase compensation to members affected by the Hampshire case.
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