Better pension payoff for longer workers in company insolvency

THE GOVERNMENT has confirmed the cap on compensation paid by the Pension Protection Fund (PPF) will be adjusted to give more money to long-serving employees with large pension pots.

Under current legislation benefits for members of schemes that end up in the PPF after an employer insolvency who have not reached normal retirement age are capped at £31,380 a year, reports sister publication Professional Pensions.

But the Department for Work and Pensions (DWP) announced today that this cap would be increased by 3% for every full year of service above 20 years completed by an employee.

The maximum members will be able to receive under the revised cap will be approximately £63,000.

Pensions minister Steve Webb (pictured) said the changes would not be backdated but the revised cap would apply to all members already in the PPF when the legislation is enacted.

Announcing the changes, Webb said: “The government accepts that the PPF compensation cap could have a disproportionate effect on some people who were members of a scheme for a long time.”

The revised cap will also affect any scheme that does not enter the PPF, but only where it begins to wind up or enters the PPF assessment period after the revised cap is introduced.

The DWP said the changes would mean someone who had been a member of a scheme for 40 years and accrued a pension of £50,000 would see their annual compensation rise from £31,380 to £45,000.

Webb said he would bring forward the legislation to revise the compensation cap as soon as parliamentary time allowed.

Former Turner & Newall senior manager and Early Retirees Pension Action Group chairman Grenville Hampshire, who has long campaigned scrap the cap, said the announcement was a “bitter disappointment”.

He said: “Many of us who have been fighting this battle for over seven years will derive little benefit from the proposed changes and some will derive no benefit at all. The minister has squandered a golden opportunity to address what everyone, including the minister, accepts is gross injustice, with no cost to the tax payer.

“Presumably in order to put a positive spin on the proposed changes, the minister has quoted an extreme example; an example that he knows full well will impact on very few people.”

Hampshire added that the proposed changes fell short of complying with the European Solvency Directive 2008 which requires governments to protect worker’s pension rights in the event of an employer insolvency.

Earlier this year the European Court of Justice (ECJ) ruled in the Waterford Crystal case that providing compensation of less than 50% of accrued benefits did not give sufficient protection. This outcome is still possible under the revised cap.

Hampshire said: “They appear to have recklessly disregarded the outcome of the recent Waterford case at a point when they could have put this problem behind them had they shown a little more initiative.”

But a DWP spokesman said: “We are confident that legislation governing the PPF meets the UK’s obligations under the Insolvency Directive, including after these changes which go above and beyond the requirements of the directive.”