On the go: The Pension Protection Fund will soon start making changes to its benefit structure, since the Department for Work and Pensions will not be appealing the Court of Appeal decision which ruled the compensation cap unlawful.
In an update on its website, the pensions lifeboat stated that the secretary of state for work and pensions has confirmed to the court that she will not appeal the ruling on the cap.
In July, the DWP saw its appeal on the Pension Protection Fund cap, previously considered discriminatory on the grounds of age by the High Court, dismissed by the Court of Appeal.
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 up with a pension worth less than 90 per cent of their benefits.
The government had appealed a High Court decision issued in June 2020, where 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.
In the recent update, the PPF stated that other claimants to this case have also confirmed that they will not appeal further on the approach to calculating the Hampshire 50 per cent minimum.
However, until the pensions lifeboat has planned the implementation of the judgment, it will continue to pay members their current level of benefits, it said.
According to LCP, schemes could expect some impact of this ruling in their levy payments, since the PPF estimated in its annual report that the future cost of removing the cap for their members would be around £200m.
“Schemes with a significant number of capped members, especially executive schemes, could see large increases in their levy bills,” the consultancy said.
