A preliminary opinion from the Advocate General of the ECJ in the case of Grenville Hampshire v The Board of the Pension Protection Fund argues that compensation should be set at at least 50 per cent of total entitlements, and not capped at £35,000 as it is under the PPF’s structure.
The opinion, which reflects the preliminary position of the ECJ, argues that Article 8 of Directive 2008/94 is to be interpreted to the effect that every individual employee — subject to specific cases of abuse within the meaning of Article 12(a) of that directive — is entitled to compensation of at least 50 per cent of the total value of his accrued rights or entitlements to old-age benefits in the event of the insolvency of his employer.
It says Article 8 of Directive 2008/94 contains an obligation on Member States which is unconditional and sufficiently precise, with the result that it may be relied on directly by an individual against a body such as the Pension Protection Fund.
Prospect national official David Luxton says: “At first glance this opinion seems like it could be very favourable for many Prospect members who have lost pension entitlement due to the insolvency of their employer and whose compensation from the Pension Protection Fund is very low. The cap has left many people facing hardship.
“Hopefully the court will endorse the minimum level of protection advised by the Advocate General so that pensioners who have already lost out significantly maintain a minimum level of compensation.”
Lincoln Pensions managing director Alex Hutton-Mills says:“If it stands, this ruling could materially increase the size of the pension liabilities guaranteed by the PPF, and will present big questions over, firstly, how this should be funded and secondly the broader question of the fairness of the cap not applying to pensioners. Reducing the level of protection offered to pensioners and the benefits of lower earners could be politically unacceptable.
“If the PPF chooses to increase its annual levy on all defined benefit pension schemes, this would provide a stronger incentive for many sponsors to accelerate funding of their pension obligations. Finally, removing the benefit cap could also reduce the perverse incentives that PPF drift creates to avoid dealing with “zombie” schemes.”