Court Of Appeal Refers The PPF Compensation Cap To The European Court

The Court of Appeal delivered judgment on 28 July 2016 in the case of Hampshire v The Board of the Pension Protection Fund [2016] EWCA Civ 786. The case concerned Article 8 of the EU Insolvency Directive, which requires Member States to ensure that "necessary measures" are taken to protect the pension benefits of current and former employees under the employer's occupational scheme, in the event of the employer's insolvency. The requirements of Article 8 had been transposed into UK domestic law by establishing the PPF and the Financial Assistance Scheme. Broadly, under the Pensions Act 2004, where there has been a "qualifying insolvency event" in relation to a scheme's employer and a "section 143 valuation" which demonstrates that a pension scheme has insufficient funds to pay at least the PPF levels of compensation, the PPF will pay compensation to beneficiaries of the pension scheme concerned.

PPF compensation for members is paid at one of two levels:

The "100% level": for members who have reached Normal Pension Age by the Assessment Date. The annual amount of compensation paid at this level is not subject to any cap. The "90% level": for members who have not reached Normal Pension Age by the Assessment Date. The annual amount of any compensation paid at this level is subject to a cap. The amount of the cap depends on the age at which compensation is paid, and the amount of the compensation cap is increased each year in line with the increase in the general level of national earnings. Unfortunately, the existence of the PPF compensation cap means that it's possible for some members to end up receiving less than 50% of their full pension entitlements.

Facts of Hampshire

Mr Hampshire appealed a decision of the High Court, which had rejected his claim relating to the application of the PPF compensation cap to his pension. His pension had been reduced by almost 67%. In the High Court, Mr Hampshire had argued, unsuccessfully, that in light of the ECJ decisions in Robins and Hogan, the obligation under Article 8 of the EU Insolvency Directive to take "the necessary measures" imposed a requirement on Member States that every member of an insolvent employer's pension scheme must receive at least 50% of their pension benefits, and that the Directive was therefore directly effective. The High Court had concluded that the Insolvency Directive was not binding on the PPF and that the PPF had acted correctly in complying with the relevant UK...