Regulation

Pension Protection Fund cap ruled illegal on age discrimination grounds

Rozi Jones
|
22nd June 2020
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"There could be further legal challenge to the whole principle of only paying 90% compensation across the board for those under pension age."

The High Court has today ruled that a cap on Pension Protection Fund (PPF) compensation for those with larger pensions, and which only applies to those under pension age, is illegal on age discrimination grounds.

Under current rules, the basic level of PPF compensation when a company becomes insolvent and its members are transferred to the PPF is 100% of scheme benefits if the member is over scheme pension age when the insolvency happens, and 90% if the member is under pension age.

Separate to this, there is a maximum amount that can be paid in compensation (the PPF cap). But this cap only applies to those who are under pension age. The High Court has today ruled that this cap is unlawful. As a result, hundreds of capped PPF members may see their benefits increased, and in some cases will receive backdated payments.

But as well as benefiting those directly affected, the judgment could have much wider implications, according to LCP partner and former pensions minister, Steve Webb.

The court did not rule on whether paying 90% compensation to those under pension age and 100% to those over pension age is itself discriminatory. Changing this rule could affect hundreds of thousands of current and future generations of people of working age whose schemes end up in the PPF.

Today’s ruling could also affect the PPF levy payable by firms who have relatively large numbers of higher earners (because their deficit measured on a PPF basis would go up).

Commenting, Steve Webb said: “This ruling is great news for thousands of workers whose pensions were capped simply because their company went bust before they reached pension age. But it could have a much wider knock-on effect. If it is discrimination to cap compensation on larger pensions only for those under pension age, there could be further legal challenge to the whole principle of only paying 90% compensation across the board for those under pension age. This could have much more far-reaching implications for the overall size of the PPF levy and for the levy payable by individual schemes and employer.s”

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