On the go: The Pension Protection Fund plans to appeal a judgment forcing it to pay at least half of the defined benefits expected by survivors of scheme members, while the government will appeal the finding that the PPF’s compensation cap is illegal.
The benefits provided by the UK lifeboat fund have been the target of a string of high-profile legal processes in recent years. In 2018, 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.
This was known as the Hampshire ruling, and in June this year the High Court subsequently ruled on the PPF’s methodology for implementing the judgment.
Mr Justice Lewis went further in his ruling, arguing that the PPF’s cap on total compensation — which is applied to members who have not yet reached normal retirement age — is discriminatory on the grounds of age.
He also found that members’ and survivors’ benefits should be subject to the 50 per cent test, on a cumulative basis of the actual value of the benefits their scheme would have provided.
The PPF operates a split benefit system, whereby members who are past normal retirement age when their scheme sponsor becomes insolvent are paid their full benefits, albeit sometimes with lower annual increases. Deferred members, however, see their benefits cut to 90 per cent of their original entitlement, and capped.
In an update on Friday, the PPF confirmed that it will challenge the judge’s argument that survivors’ benefits should also be subject to the 50 per cent test.
“The Administrative Court’s judgment in June 2020 upheld our general approach to calculating increases in compensation as a result of the Hampshire ruling. But it also said we need to make sure members and survivors each receive at least 50 per cent on a cumulative basis of the actual value of the benefits their scheme would have provided,” the lifeboat stated.
“These additional requirements mean we’d need to amend our methodology. It’s also different to our view of what the Insolvency Directive requires.”
The PPF also announced that the Department for Work and Pensions is launching a separate appeal against the key finding that the cap is discriminatory.
“We’ve asked the Court of Appeal if we can wait until the appeal process is completed before we start making any changes to payments that would be needed because of the June 2020 judgment. This is so we don’t pay the wrong amount, and then have to claim back overpayments from members,” the lifeboat added.
“Until we know more, we’ll continue to pay members their current level of benefits.”
