DWP rethinks PPF compensation regulations after ECJ ruling

Written by Jack Gray

The DWP has had to halt and alter plans for new regulations regarding pension compensation for employees of companies that enter insolvency.

The regulations, which were consulted on and drafted following the High Court ruling in Mr. Beaton v the board of the PPF on 12 October 2017, have had to be put on hold and amended following the European Court of Justice’s (ECJ) recent ruling.

Last week, the ECJ ruled that Pension Protection Fund compensation must amount to 50 per cent of the member’s pension entitlement if their employer becomes insolvent in Mr Hampshire v the board of the PPF.

In their report, Changes to Pension Protection Fund Compensation Regulations, the government explained their decision: “The practical effect of this is that a person’s relevant fixed pension will be treated separately from their pensionable service within the scheme, and therefore will be subject to two separate caps.

"These individuals will receive more PPF compensation than someone whose pension benefits were made up entirely of actual pensionable service.

This is not the government’s intention and we had intended to remedy this anomaly as part of this instrument. However, there is a risk that proceeding with this change may result in individuals inadvertently receiving less than 50 per cent of their expected pension benefits within the PPF, which would run counter to the Hampshire judgment.”

As a result, the government’s new regulations will try to ensure that the PPF has the legal basis to: pay survivor benefits to vulnerable groups, revalue PPF compensation which is not yet in payment, apply inflationary increases to compensation payments and include a relevant fixed pension in the application of the of the 90 per cent level of compensation for those already receiving their pension.

The government and PPF will carefully consider the new ECJ ruling and “fully remedy the negative effects of the Beaton judgment, to ensure that the PPF compensation regime remains operational and compliant with the requirements in the Insolvency Directive”.

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