In the case of Hampshire v the Board of the PPF, the European Court of Justice has ruled that the cap on PPF benefits is illegal if it reduces a member’s benefits by more than 50%.
Background
PPF compensation for members who have not reached their scheme’s normal pension age and have not retired through ill health is subject to a cap, currently £35,105.56. The cap is increased for members with over 20 years’ service in their scheme but can result in highly-paid members losing a large proportion of their scheme pension. Mr Hampshire’s benefits were cut by 67% when the Turner & Newall scheme went into the PPF.
Of course, the cap is not the only feature of the PPF’s benefit structure that reduces the benefits that members expected. The PPF does not pay any increases in payment on pensions accrued prior to 6 April 1997; this feature means that Mr Hampshire’s pension is now only 25% of what it would have been under the Turner & Newall scheme.
Comment
The decision now has to be translated into UK law by the Court of Appeal, after which the Government will have to decide how to address the issue within the PPF rules. The issue not only has the potential to affect ongoing and past compensation for existing PPF members but calls into question what should be done about schemes that were forced to wind up outside the PPF, paying benefits only marginally higher than PPF compensation.
In addition, an increase in PPF benefits will have to feed through into an increase in the PPF levy paid by ongoing defined benefit schemes.