The Court of Appeal has referred the Hampshire v The Board of the Pension Protection Fund legal case to the EU (European Union) Court of Justice for a final ruling regarding the compensation limits that restrict the retirement remuneration given to former staff of insolvent employers.
The compensation cap that is currently used within the Pension Protection Fund (PPF) is typically imposed on individuals who are below their scheme’s normal pension age at the time of the employer’s insolvency.
The Hampshire v The Board of the Pension Protection Fund case has arisen due to a challenge by Grenville Hampshire, who opted for an early retirement in 1998 from his employers Turner and Newall when he was made redundant after an organisation takeover. His pension was due to total £48,781.80 a year, subject to increases of at least 3% per annum.
The Turner and Newall pension scheme entered the PPF in 2006 due to insolvency, when Mr Hampshire was 58. The normal pension age for the Turner and Newall pension scheme, which had 34,285 members, was 62. This meant that Mr Hampshire was subjected to the compensation caps imposed by the 2004 Pensions Act, reducing his pension income by 67% to be £19,819 a year.
The Court of Appeal agreed with Mr Hampshire’s argument on 28 July 2016, accepting that EU member states must ensure that every employee of an insolvent employer receives at least half of their accrued pension benefits, with the compensation cap and limitations on annual increases at a level below 50% therefore not complying with EU law.
Mr Hampshire and 15 of his ex-colleagues have argued that this action goes against Article 8 of the Insolvency Directive.
The Court of Appeal has asked the EU Court of Justice for a final ruling, also asking for clarification on whether Article 8 of the Insolvency Directive is directly effective, which would mean it can be invoked against the PPF to override the terms of the 2004 act.
Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: "The judgement does now open up the possibility that the European Court of Justice could rule the PPF compensation terms incompatible with European law. This in turn could result in Parliament having to modify the terms of the UK's lifeboat scheme to bring it into line with EU law.
"However it is also important to note that this case has already been through a number of stages, including the Pensions Ombudsman and the High Court. Nothing is expected to change in the short term and Brexit events could even end up overtaking any judgement eventually made by the EU Court of Justice."
