The Pension SuperFund has followed the Bauer case with interest. It now seems the ECJ has ruled that benefit compromises following employer insolvencies cannot take pensioners’ income below a state-specific income poverty line, in effect reintroducing Guaranteed Minimum Pensions. This falls short of what could have been a potentially ruinous determination that 100% of benefits must always be paid, but still has major ramifications for pension scheme members, employers and the industry at large.
Luke Webster, CEO of the Pension SuperFund, remarked that “In a decent society, we should aspire to our pensions system achieving more than simply preventing poverty in retirement; rather, we should seek a comfortable retirement for those who have diligently worked and saved in the expectation of a certain level of income.”
He went on “So, despite this judgment, in the unfortunate circumstances where a pension fund’s sponsor fails and there are insufficient resources to deliver full benefits, there will still be members who lose out. This underlines the value added though secure solutions like the Pension SuperFund’s, which uniquely share outperformance with members and so offer them the chance to recover or even exceed the value of their lost pension.”
“The technical challenges of implementing this judgement are likely to be tremendous, especially if it is judged to apply retrospectively. Regardless of the impact on pension liabilities( i.e. the obligations of the PPF or others that have taken on schemes at reduced benefits), the administrative cost is likely to be very significant, and an increased PPF levy will place further burden on the resources available to the pensions system as a whole. So whilst there may be winners and losers at an individual level, the UK’s pension system will be worse-off and more complex.”
Mr Webster concluded “We argue this adds further urgency to the call to consolidate, attract new capital in to stand behind accrued pensions and realise all the benefits of governance and scale that a smaller number of properly-resourced, fully-focused and expert pension providers like us can deliver. “