On the go: The Court of Justice of the European Union has ruled that the cap imposed on benefits paid by the Pension Protection Fund is unlawful when it reduces the payments made to a saver by more than half.
The decision will likely see an increase in the lifeboat’s liabilities, although Pensions Expert understands that less than 1 per cent of the fund’s members will be entitled to an uplift.
It will however have to rethink its current benefit structure. Pensions paid by the PPF are subject to both a universal haircut and a cap set by the Department for Work and Pensions.
A priority must be given to address the position of people such as Mr Hampshire, who could find themselves receiving less than half their pension due to the limited nature of the PPF
Steve Webb, Royal London
The cap currently sits at £39,006.18, leading to a benefit of £35,105.56 when the 90 per cent cut is applied.
In the case of Mr Hampshire, a well paid former employee of defunct manufacturing business Turner and Newall, the cap and cut reduced his benefit by 67 per cent.
The non-payment of inflation-linked increases for pensions accrued before 1997 mean he currently receives around 25 per cent of his original entitlement.
Reductions of more than 50 per cent bring the UK’s system into conflict with article 8 of a 2008 EU directive, which has previously been interpreted to say that pension lifeboats must cover at least half a member’s benefit.
As was foreshadowed by an advocate general ruling earlier this year, the CJEU followed this interpretation in Grenville Hampshire v The Board of the Pension Protection Fund.
The judgment also required the PPF to measure its reduction against the full benefit promised by the solvent scheme, raising the possibility that some PPF members may now be paid pre-1997 increases.
A PPF spokesperson said the lifeboat would consider the impact of the judgment, and added: “We have already been in discussions with the [DWP] about what changes to PPF compensation and [Financial Assistance Scheme] assistance will now be required.”
“We will work to implement the judgment as quickly as possible but first need to consider the judgment further to understand what action we can take prior to legislative change and the conclusion of the UK court proceedings,” the spokesperson continued, adding that members will be updated as soon as possible.
Scrap the cap? PPF rules challenged at CJEU
An anti-cap precedent is mounting, notes Ian Neale, director at Aries Insight.
Royal London director of policy Steve Webb said the PPF would likely have to address the situation before redistributing its current surplus to a wider population of members.
“Given that the PPF has spoken about what to do with its surplus funds, a priority must be given to address the position of people such as Mr Hampshire, who could find themselves receiving less than half their pension due to the limited nature of the PPF,” he said.
