European Court of Justice (ECJ) decision leaves Government Pension Protection in disarray
01 February 2007
City lawyers say that an ECJ judgment means further delays in determining what protection the Government should provide to members of pension schemes when their employers fail.
The ECJ ruled that the UK's pension protection provisions failed to safeguard adequately the pensions of thousands of Allied Steel and Wire workers. It held that:
- the 1980 EU insolvency directive does not force the UK to fund lost benefits in full;
- UK law does not meet the level of protection required; and
- Government provision of anything less than 50% of what members were expecting was insufficient.
The decision has paved the way for many thousands of other workers who lost their pensions when their employers ceased trading on insolvency and who are not covered by the PPF or adequately protected by the Financial Assistance Scheme to pursue their own claim in the UK courts.
Adam Bushby, pensions partner at LG comments: "This case leaves HM Government's pension protection policy dating back to the 1980s and 1990s in disarray. Unfortunately it will still be some time before the High Court rules on the level of compensation employees will receive. The Government could be faced with claims running into millions of pounds, the cost of which will inevitably have to be met by the taxpayer."
Adam says: "It is difficult to see how such protection can be funded other than out of general taxation. This will inevitably result in complaints that, through taxation, people without their own pensions will end up paying to provide pensions to those whose employers have been wound-up."
"Fortunately it now seems very unlikely that the Pension Protection Fund (PPF) will have to protect 100 per cent of benefits as some commentators had speculated. That could have led to massive increases in levies paid by occupational pension schemes," he added.
Notes to editors
LG's eight-strong pensions team is highly experienced in advising both employers and trustees on pensions law. It also specialises in advising insurance companies and acts for numerous IFAs.
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Adam Bushby
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