Pensions - Articles - Court ruling may mean multi billion pound bills to employers

 In the ‘Bauer’ case, a German worker challenged the German equivalent of the UK Pension Protection Fund over the amount of pension compensation he received after his employer went bankrupt. The Court has today ruled that the compensation scheme needs to replace the member’s full benefit. By contrast, the UK Pension Protection Fund covers only 90% of member benefits where insolvency happens before the member reaches pension age, and all PPF beneficiaries may face reduced annual increases compared with those that their scheme would have paid.

 If this case is binding on the UK, the PPF may have to substantially increase the annual levy which it currently charges on employers, currently set at around £620m per year. If compensation has to be paid in full going forward and if payouts are backdated, employers could face a mullti-billion pound bill to make sure that the PPF can afford to meet its liabilities.

 Commenting, Steve Webb, Director of Policy at Royal London said: “This is a decision that could have huge implications for British business and the pensions industry. Paying full benefits, with retrospective effect, could lead to a huge increase in the liabilities of the Pension Protection Fund. Unless the Government intervenes, this full cost could fall on employers who could face multi-million pound bills”.