The European Court yesterday provided its ruling on the level of compensation to be provided to individuals who do not receive all of their occupational pension due to the sponsoring employer of their scheme going insolvent.

The European Court ruled that the current EU legal requirement that individuals should be entitled to at least 50% of their benefits can continue – provided the person is not left at risk of an EU poverty measure equivalent to about £11,142 per year (Eurostat 2018).

In the UK, the Pensions Protection Fund, which has 400,000 members, provides 100% benefits to people who are already drawing their pension at the time of the employer going insolvent, and 90% to those who are not yet retired. Prior to the ruling today, many people had thought it might result in the PPF having to pay out 100% of benefits in all cases and that this might result in enormous new costs for employers and, possibly, for the Government.

Today’s judgement by the European Court provides a pragmatic solution to the question of how to ensure a minimum level of protection to savers in a company pension where the scheme is underfunded and the sponsoring employer goes insolvent.”

It is not clear how it will be possible to assess whether a person who is in the PPF is in receipt of total income (state pension, pensions, other income) above the new minimum level.

Today’s case focussed on Gunther Bauer, a former worker of a now defunct German company, could fundamentally alter the UK’s only Government-backed pensions safety net. With the ruling now given, the judgement will take affect across EU member states. In light of Brexit, it is not clear to what extent this ruling will apply in the UK.

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