The European Court of Justice (ECJ) has ruled that the UK has failed to meet EU standards for protecting workers from losing their pensions if their employer goes bankrupt – but has stopped short of ordering the government to pay compensation.
Instead, the ECJ has returned the case to the high court for a final ruling on whether the government should make up any shortfall in workers’ pensions.
The case was brought by Amicus and other unions on behalf of 836 former workers at Allied Steel and Wire in Cardiff and Sheerness. The ECJ found that successive UK governments have failed to properly implement the European Insolvency Directive which should have been in effect since 1983.
The ruling could now see the government being forced to pump billions into the Financial Assistance Scheme (FAS), which it set up in 2004 to provide basic support to those affected by employers’ insolvency. According to The Times it has so far pledged £400 million to the fund.
Although the court said that member states are not required to fund pension rights themselves – or in full – it agreed with the unions’ submission that the FSA can lead to a reduction of 80 per cent in entitlement to benefits. Judges said “such a system would render the directive for all practical purposes meaningless”.
And although the UK has the backing of Ireland and the Netherlands over its implementation of the directive, judges said the system “has not prevented substantial losses”, and the level of protection “is not sufficient”.
As well as leaving compensation to the discretion of the UK courts, the ECJ has also, to some extent, left open the question of what is an acceptable level of compensation. Less than 50 per cent has been ruled unacceptable but it also said that it did not have to be 100 per cent.
As a result, it’s not only the government that faces a hike in costs. Companies with existing final salary schemes are now likely to see another increase in the levy they pay to the Pension Protection Fund (PPF).
The PPF currently has a cap of £26,000 a year on individual pay outs – but the eventual decision on an acceptable level of compensation may force it to scrap the cap and increase the amount it raises by corporate levy.
Amicus is now calling on the government to improve both the PPF and FAS schemes without delay.
Its general secretary Derek Simpson said: “We have consistently said that we will defend our members’ rights on pensions and this case demonstrates that successive governments have failed workers who have heeded their advice to save for their retirement.
“We want the government to reconsider its position. We believe that the ECJ ruling demonstrates they have a moral obligation to reimburse the many thousands of people who, through no fault of their own, have lost all or substantial parts of their pension savings.”
