Can PPF compensation be below 50%? Court of Appeal refers Hampshire v PPF to European Court of Justice

Written on 1 Aug 2016

In a judgment handed down on 28 July 2016, the Court of Appeal has referred Grenville Holden Hampshire v the Board of the Pension Protection Fund [2016] EWCA Civ 786 to the CJEU.

The case concerned a member, Mr Hampshire, whose pension had been reduced by 67% by the application of the Pension Protection Fund (PPF) compensation cap following the insolvency of his employer. The High Court had previously rejected Mr Hampshire’s claim that the application of the PPF compensation cap to his pension breached Article 8 of the EU Insolvency Directive, which requires that Member States take “the necessary measures… to protect the interests of employees” in respect of their pensions when their employer goes insolvent.

Previous CJEU decisions in Robins and Hogan had established that Article 8 required Member States to provide a minimum level of protection of 50% of a member’s accrued pension. The PPF contended that this ‘50% rule’ did not require the UK to ensure that every individual employee of every scheme receives a minimum entitlement of 50% of their scheme benefits. Instead, they considered that it required an assessment of the effect of a cap across a range of individuals. The High Court judge agreed with the PPF.

However, the Court of Appeal disagreed. It held that the High Court judge had misinterpreted the decisions in Robins and Hogan. However, the Court acknowledged that the facts in this case were not sufficiently analogous to those in the previous CJEU cases. As such, it did not make its own decision on whether Article 8 was breached in relation to Mr Hampshire, and instead referred the matter to the CJEU for determination.

The case is an interesting development. If the CJEU decides in favour of Mr Hampshire, then the PPF is likely to have to provide a 50% ‘underpin’ pension to each member affected by the compensation cap. This will increase the PPF’s liabilities, which may have an adverse impact on PPF levy payers. However, given that the EU Insolvency Directive is a creature of EU law, it remains to be seen what the wider implications of a decision in favour of Mr Hampshire will be in the context of Brexit.

Contacts

If you would like further advice on anything covered in this update, please contact Jonathan Hazlett or James Saddler whose contact details are below. Osborne Clarke is a member of the PPF’s Assessment Period Legal Panel and the Insolvency & Corporate Panel.