PensionsJul 20 2021

DWP loses court battle on PPF cap

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DWP loses court battle on PPF cap
ByMaria Espadinha

The government has seen its appeal on the Pension Protection Fund cap, previously considered discriminatory by the High Court, dismissed again, which means the pensions lifeboat will have to alter its benefits structure.

UK law established that the pensions lifeboat will pay 90 per cent of a scheme member’s benefits if they have not reached the normal retirement age of the scheme when they are transferred into the PPF.

But there is a cap on the total amount to be paid each year, currently set at £41,461 at age 65, which means that high earners could have effectively ended with a pension worth less than 90 per cent of their benefits.

The government had appealed a High Court decision issued in June 2020, when Mr Justice Lewis determined the cap was unlawful, enabling capped members to claw back up to six years’ of underpayments.

The cap had already been implicated in another landmark legal challenge, known as the Hampshire case, in which the Court of Justice of the European Union 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.

However, the judge went further in his judgment last year, arguing that the cap itself – which is applied to members who have not yet reached normal retirement age – is discriminatory on the grounds of age.

In a decision issued by the Court of Appeal yesterday (July 19), the judges – Lady Justice Asplin, Lord Justice Green and Lady Justice Elisabeth Laing – agreed with the original judgment, dismissing the appeal.

The judges stated the PPF was instead entitled “to adopt a scheme which involves a one-off calculation, and then to pay out the compensation due as a result of that calculation over the period of the pension”.

The judges noted that it might “involve paying more than 50 per cent in some years and less in others provided that, overall, the cumulative level of compensation paid does not fall below 50 per cent of the value of the benefits that would have been paid under the scheme over the lifetime of the pensioner”.

However, it is not clear when the change to the PPF’s benefit structure will have to be made, “and as such, the secretary of state for work and pensions has asked for more time to address the court on this complex legal issue”, a PPF spokesperson stated.

PPF wins two appeals

Besides the Department for Work and Pensions' case the PPF itself had submitted two appeals regarding its compensation calculations following the Hampshire ruling, which were granted by the Court of Appeal.