Pension safeguards 'inadequate' - European court says Government failed thousands of workers
THOUSANDS of British workers who lost their pensions because of company insolvency received "inadequate" protection from the Government, a European court ruled yesterday.The European Court of Justice (ECJ) said the system in place prior to the establishment of the Pension Protection Fund (PPF) was "incompatible" with European law.But the ruling fell short of demanding that workers receive direct recompense from the state, with the case now being returned to the UK courts to decide.The ECJ also stated that employees whose pension schemes went bust would not necessarily be entitled to full compensation – an implication that the current system does offer sufficient protection to workers.
The court's judgment will come as a relief to firms that had feared their annual contribution to the PPF would soar if the ECJ ruled compensation would have to be 100 per cent. But it will mean staff whose pension schemes went bust before the PPF was born in April 2005 are still in with a chance of some compensation.The ECJ ruling follows a case brought by trade unions Amicus and Community on behalf of pension scheme members at Allied Steel and Wire, which went bust in 2003. It found the Government system at that time was "incompatible with community law". The judgment also comes after more than 550 workers lost their jobs – and many their pensions as well – after the Hibernia Foods factory in Bridlington closed in January 2004.
The unions claimed the ruling as a victory. Derek Simpson, Amicus general secretary, said: "This judgment vindicates our decision to take this case all the way to the ECJ. We want the Government to reconsider its position. We believe that today's ruling demonstrates they have a moral obligation to reimburse the many thousands of people who ... have lost all or substantial parts of their pension savings."The case will now return to the High Court in London, which will decide if workers who lost out prior to the setting up of the PPF are entitled to compensation. But in a move that will allay the worst fears of UK firms the ECJ ruling implied the PPF did serve as a sufficient safety net for staff. Under the present system, members below retirement age only receive 90 per cent of their pension when they retire, with the amount capped at £26,050 every year.This appears to be in line with the ECJ ruling that member states will be given "considerable latitude which excludes an obligation to guarantee in full".
If the ECJ had called for a 100 per cent compensation level, UK firms could have seen their levy to the PPF rise by 500 per cent, analysts felt. In some cases, firms could have seen their levy rise 20-fold, leading to many going bust, experts said.The Department for Work and Pensions said yesterday's ruling was a "common sense" judgment that recognised current EU laws did not require states to ensure pensions were guaranteed in full.