Euro court slams inadequate PPF

The European Court of Justice has said the Pension Protection Fund is inadequate and should provide full protection to those who lose some or all of their occupational pensions.

ECJ advocate general Dr Juliane Kokott says the EU requirement is for full protection to be offered to workers, meaning the PPF may have to be restructured.

The PPF was set up in 2005 and only covers the full entitlements of existing pensioners of companies that have gone bust. Members who have yet to reach pension age get 90 per cent of their entitlement, capped at 26,050.

The court’s comments followed the failed bid by Allied Steel & Wire workers to prove the Government did not fulfil its obligations under a European insolvency directive to protect workers’ final-salary pension schemes.

Lovells pensions litigation partner Nicholas Heaton says the comments by the advocate general suggest the PPF needs bolstering but it is an opinion and not necessarily binding.

Kokott said: “The UK Government and Ireland take the view that article 8 of directive 80/987 does not require full protection of employees’ accrued or prospective pension entitlements, but merely a minimum level of protection. They fail however to indicate what specific content such minimum protection should have. The interpretation of Article 8 nonetheless indicates that it calls for full protection.”

Heaton says: “As the advocate general said the directive requires full protection, it would seem the Government needs to look at whether the PPF provides full protection.”

Independent consultant Dr Ros Altmann says: “The ruling seems to suggest the PPF may be illegal and should replace pensions in full rather than only 90 per cent protection, up to a cap and reduced indexation.”

Norton Rose partner Lesley Browning says: “Statistically, the ECJ does follow the opinion of the advocate general. I think that the Government will have to look at the consti- tution of the PPF and changes will be made.”