The Court of Appeal has confirmed that the Pension Protection Fund compensation cap for those below pension age is discriminatory and must be disapplied. It has however backed the PPF in taking an ‘ex ante’ approach to calculating a 50% pension but warned that the lifeboat fund’s actuarial assumptions could still be challenged in future. 

 

Last August, the Department for Work and Pensions lodged an appeal against the High Court ruling that the PPF compensation cap is unlawful on the grounds of age discrimination. The cap ensures pensioners receive their full benefits when a scheme enters the PPF, while those below retirement age are seeing their benefits cut to 90% and lower increases, which can lead to substantially lower pensions for high earners in particular.

 

 

With the government's appeal having failed, the cap must now be disapplied, but the PPF said that “the period of time over which the cap has to be disapplied is not yet clear, and as such, the Secretary of State for Work and Pensions has asked for more time to address the Court on this complex legal issue”. 

 

It added that it also did not yet know whether the respondents or the Secretary of State will want to appeal this latest judgment. “So for now we’ll continue to pay members their current level of benefits," it noted. 

 

A DWP spokesperson said: “The Government is considering its next steps in the Court of Appeal judgment regarding the compensation cap.” 

 

This is not the only case where the government has had to address past decisions leading to age discrimination. Public service pension schemes are also having to pay higher pensions after the courts found, in cases brought by firefighters and judges, that when public sector schemes shifted from final salary to career average in 2015 the government's protection of older employees was discriminatory to younger ones.

 

 

While the compensation cap ruling had been appealed by the government, the PPF itself had appealed the 2020 ruling on the approach it may adopt to meet the requirement for members to receive 50% of the value of their entitlement.  

 

The 50% requirement goes back to the 2018 judgment in Grenville Hampshire v PPF, where the Court of Justice of the EU had decided that those in the PPF and their beneficiaries must receive at least half of the pension they would have received without an insolvency, and that this should be interpreted as half of the actual pension over a lifetime. 

 

But Lady Justice Asplin, Lord Justice Green and Lady Justice Elisabeth Laing ruled that the judge had erred. The approach supported by the previous ruling implies that a comparison of benefits must be made after the death of the main beneficiary and their survivors, as the total pension due will only be known then. 

 

However, the Appeal Court judges now said that “once further valuations, after the initial determination of value has been arrived at, are required, the obligation under Article 8 [of Directive 2008/94/EC on the protection of employees in the event of the insolvency of their employer] becomes shapeless and unenforceable, and that an obligation which can only be satisfied or fulfilment of which can only be confirmed with hindsight on death, is no obligation or test at all”.  

 

The judges said that “the PPF is not required to adopt a Lifetime Payments Test and is entitled to use a Value Test as long as that one-off comparison satisfies the obligation imposed by Article 8 as interpreted in the case law”. 

 

The PPF said only that “the Court of Appeal has supported our approach for increasing payments to PPF and FAS members following the 2018 European Court of Justice judgment in the Hampshire case”. 
 

A DWP spokesperson added: “We are pleased that the Court of Appeal upheld the PPF’s appeal and found that its methodology for implementing the Hampshire Judgment was lawful.” 

   

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