Though the ECJ said that a government does not have to provide
100% compensation to members of final salary pension schemes whose
firm goes bust, it did say that the 20% some UK members have
received is inadequate under European law.
"Provisions of domestic law that may, in certain cases, lead to
a guarantee of benefits limited to 20 or 49% of the benefits to
which an employee was entitled, that is to say, of less than half
of that entitlement, cannot be considered to fall within the
definition of the word ‘protect’," said the ECJ ruling.
Two funds exist to compensate pension holders. The Pension
Protection Fund (PPF) was created in 2005 and pays out compensation
to pension holders in the case of company insolvency, calculating
payments according to a formula related to salary. It is funded by
compulsory contributions from business.
The Financial Assistance Scheme deals with claims that pre-date
the setting up of the PPF, and industry figures claim that it has
inadequate funds. It is the more likely of the two funds to be
affected by the ruling.
The ECJ case was begun when workers at engineering company
Allied Steel and Wire (ASW) took a case to the Court when the firm
went into liquidation in 2003. "People will need to be compensated
and we are convinced we have a strong case. This is a fantastic
result," a spokeswoman for AMICUS, the union which backed the case,
told Reuters news agency.
"The court finds that the directive does not oblige the member
states themselves to fund the rights to old age benefits," said the
ECJ. "The directive cannot be interpreted as demanding a full
guarantee of the rights in question. Nevertheless, a level of
protection of those rights such as that afforded by the United
Kingdom system is inadequate."
"This judgment will embarrass the Government," said Alastair
Meeks, a pensions specialist at Pinsent Masons, the law firm behind
OUT-LAW.COM. "The Government is currently under attack from all
sides for not putting measures in place to protect members of final
salary schemes. The Parliamentary Ombudsman has already heavily
criticised the Government, and now the European Court of Justice
has held that it has been in breach of European law for over 25
years."
If the High Court reaffirms the ECJ's view, levies on businesses
could go up, experts warned. "The scope for the PPF to reduce
benefits in future may now be limited. Levies may well go up on
other pension schemes," said Meeks. "Given the PPF is carrying out
a Government obligation, the Government's stance that it will not
underwrite its benefits is now looking threadbare."
"Employers will be concerned that the bill for any improved
compensation will land on their desks," he said.
See: The judgment
http://curia.europa.eu/jurisp/cgi-bin/form.pl?lang=EN&Submit=rechercher&numaff=C-278/05
