The Pension Protection Fund (PPF) lost an important case in 2017 on the correct meaning of “pensionable service” when determining what compensation is payable. However, the Department of Work and Pensions (DWP) has stepped in to remedy the position.
The PPF has been in existence since 2005, but it took until 2017 for someone to challenge how it operates a key term (“pensionable service”) when determining what PPF compensation is payable. Perhaps unsurprisingly, it took an individual with a background in pensions to challenge the situation.
He looked carefully at the terminology used by the PPF around “pensionable service” and found that the Fund should only reduce pension benefits that are to attribute to pensionable service accrued in the scheme that has gone into the Fund.
Therefore, contrary to how the Fund has been operating the system for the last 12 years, if an individual has, in the past, transferred benefits from another scheme to one that’s now in the PPF, the the Fund cannot reduce those transferred in benefits. The High Court agreed with this interpretation in October 2017 – as it was the only way the legislation could realistically be interpreted.
The DWP is currently consulting on changes to the Fund's legislation in order to alter the definition of “pensionable service” so that transferred benefits count as pensionable service in the scheme that goes into the PPF and can also be reduced by the PPF.
This is an essential change to make – without it, the PPF system would be extremely difficult to operate. It was always how the PPF was intended to be run.
What’s most concerning is that the PPF did not highlight this issue to the DWP themselves and ask for amendments to the legislation. Surprisingly, under the current consultation, the DWP do not appear to be backdating this change, despite the fact that this is not how the PPF has been operating for the last 12 years and so, presumably, many more individuals have also been paid the wrong level of compensation.
Published: July 2018
Pensions Law Update - July 2018
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