Employers could face increase in PPF level following ECJ ruling

Employers could face an increase in the levy payable to The Pension Protection Fund (PPF) following a ruling by the European Court of Justice that the UK’s pre-2005 pension protection regime was ‘inadequate’.

The case was initially brought to the European Court of Justice by unions to decide whether the government, under the EU Insolvency Directive introduced in 1983, should have endeavoured to do more to protect the pensions of Allied Steel and Wire workers who were made redundant when the company was declared bankrupt in 2002.

It will now go back to the High Court which could then order the government to pay compensation to those affected when steel workers’ occupational pension scheme was wound up.

The amount of an award could affect employers’ levy payments if it is higher than the current compensation limit of 90% paid out by the PPF.

Tim Keogh, worldwide partner at Mercer Human Resource Consulting, said: "As it stands, the UK’s pension system is only sustainable if scheme members continue to accept a degree of risk. If the UK high court finds the PPF still leaves too much risk in the system, the bill for avoiding future claims could run into billions, further accelerating scheme closures."

Colin Mouque, director of actuarial services at Alexander Forbes Financial Services, goes as far as predicting the end of the PPF. He said: "This could be a terrible blow for the PPF. If the High Court orders full compensation, the PPF will be bust within two years.

However, Paul McGlone, a principal and actuary as Aon Consulting is more optimistic about today’s ruling and the future of the PPF. He said: "The tone of the European Court of Justice ruling suggests the PPF arrangements are likely to be robust enough for the UK to satisfy EU law in this area. Companies can breathe a sigh of relief that today’s judgement did not rule that accrued benefits must be protected in full."

The 1,000 pension scheme members, previously employed by Allied Steel and Wire (ASW) in Cardiff and Sheerness, lost the bulk of their pensions when the company was declared bankrupt, leaving two pension funds in deficit.

The union Amicus is confident that the UK High Court will decide that its members who lost out will be ‘fully reimbursed.’ Derek Simpson, Amicus’ general secretary, said: "This judgement vindicates our decision to take this case all the way to the ECJ. We have consistently said that we will defend our member’s rights on pensions and this case demonstrates that successive governments have failed workers who have heeded their advice to save for their retirement."