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Court blocks move to protect pensions of high earners in PPF

Trustees of underfunded pension schemes have been blocked from actively exploiting the Pension Protection Fund to protect the pensions of high earners, according to a High Court ruling yesterday.

Justice Henderson rejected attempts by pension fund trustees to buy annuities for some members that would cover additional benefits higher than those guaranteed by the PPF, claiming the calls were a blatant attempt to “game” the system.

The court case focused on a group of former employees of Ilford Imaging which collapsed in 2004 with a pension deficit of £45m.

As the maximum payout for members whose firm has fallen into the PPF is around £28,000, trustees of the scheme proposed that, before transferring remaining assets to the lifeboat, some be used to buy annuities in a bid to cover the shortfall between the capped amount and the pensions higher earners were expecting.

Henderson said the plans were designed to take advantage of the PPF at the expense of the healthy pension schemes which fund it through levies.

Legal & General wealth policy director Adrian Boulding says the precedent highlights the need for higher earners to consider transferring out of their defined benefit scheme if they are concerned about the long-term solvency of their employer.

He says: “The higher earners at Ilford Imaging waited too long before trying to protect their money. If you have large benefits, you have to transfer out of the scheme before the company goes into administration.

“The PPF only covers around £28,000 but some people have built up benefits worth significantly more than that and if their firm goes bust they will lose out.

“This case shows that advisers need to be discussing the options with their clients particularly those who are seriously concerned their company could be in trouble.”

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