In 2018, the Court of Justice of the European Union (CJEU or ECJ) ruled that individual members of pension schemes should receive at least 50 per cent of the value of their accrued pension benefits in the event of employer insolvency.

In May 2020 the Administrative Court heard a challenge brought against us by a number of members to the way we’re implementing the ECJ’s Hampshire ruling, and to the lawfulness of the PPF compensation cap. 

On 22 June 2020 the court ruled that over the course of their lifetime each member, and separately each survivor, must receive at least 50% on a cumulative basis of the actual value of the benefits that their scheme would have provided. This would have required some changes to our approach of making a one-off calculation.

The ruling found that the PPF compensation cap was unlawful on grounds of age discrimination. 

We lodged an appeal on 20 August 2020 against the ruling on:

  • the approach we may adopt to meet the requirement for members to receive 50% of the value of their entitlement 
  • how survivors’ benefits should be dealt with 

The Secretary of State for Work and Pensions lodged an appeal against the ruling on the cap.

We received the judgment from the Court of Appeal on 19 July 2021. The Court supported our one-off calculation for increasing payments to PPF and FAS members. It also confirmed the High Court’s decision that the PPF compensation cap, as set in legislation, is unlawful based on age discrimination and has to be disapplied. The FAS cap was unaffected by the decision. 

The Secretary of State for Work and Pensions has confirmed to the court that she will not appeal the ruling on the cap. The respondents have confirmed that they will not appeal further on the approach to calculating the Hampshire 50% minimum. We’ve now started work to implement the judgment. 

Click on the relevant questions below to find out more about what we're doing and what it means for you. 

General

Does the ruling apply to both insolvent and solvent schemes?
What is an insolvent scheme?

Questions about the 50 per cent requirement

How are you calculating the increase to make sure I’m getting at least 50 per cent of my original benefits?
Who has received increased assistance so far?
Are there other members who might still be due an increase?
What are these other factors?
Will those other members receive their increase now you’ve got the decision from the Court of Appeal? When will they get it?
I’ve already received an increase in my assistance, but not any arrears. When will I get my arrears?
I’ve been told I wasn’t due an increase in my assistance, but was entitled to arrears. When will I get my arrears?
When arrears are paid, will they be taxed?
When arrears are paid, will they include interest?
Will there be any time limit on arrears of the 50 per cent increase?
I’ve already sent you information about my former scheme benefits. Will I have to send you this again?
I’m not affected by the cap and you’ve not written to me about this issue before, although I think I’m due an increase. Will you write to me asking me for additional information?
If I’m due an increase, can I take some of it as a tax-free lump sum?
I’m due to retire soon. Can I have a new illustration, to show what I would receive following any increase I might be due?
I’m deferred and won’t be retiring for some time. Will I be affected by the Hampshire ruling, and if so will I be informed of any change in my benefits?
If I die before my increase is paid, will the arrears be paid to my estate?

Questions about the compensation cap

Does the ruling also apply to the FAS cap?

Questions about other court cases

I’ve heard there was another case at the CJEU, PSV v Gunther Bauer. Did this affect the amount of assistance you pay?

General

Does the ruling apply to both insolvent and solvent schemes?

Currently, in compliance with existing legislation, any increases will apply to members of FAS schemes classified as having insolvent employers for the purposes of the Insolvency Directive. 

What is an insolvent scheme?

A FAS scheme will be ’insolvent’ where either the employer’s insolvency took place before the date of scheme wind up, or there was a deemed insolvency under FAS rules.  

We’ve also decided to categorise a FAS scheme as ’insolvent’ where the employer became insolvent after the date of scheme wind up, and the insolvency had a financial impact on the scheme because the employer still owed money to the scheme.  

A FAS scheme will be ’solvent’ where either the employer is still ongoing, or the employer became insolvent after scheme wind up at a point where it did not owe money to the scheme.

This is likely to be the case where:

  • no debt was triggered when the employer left the scheme, because the scheme was fully funded at that point; or
  • a debt was triggered when the employer left the scheme, but the trustees did not certify the debt and ask the employer to pay it; or
  • a debt was triggered when the employer left the scheme, and the trustees certified the debt and asked the employer to pay it, and either the employer paid the debt in full, or entered into a compromise agreement with the trustees and paid the compromised debt in full. 

Questions about the 50 per cent requirement

How are you calculating the increase to make sure I’m getting at least 50% of my original benefits?

We're running a one-off valuation exercise to determine if the total actuarial value of your assistance is less than 50 per cent of your original scheme benefits. The Court of Appeal approved this approach. 

You can find out more detail in our factsheet on implementing the 50 per cent requirement

Who has received increased assistance so far?

We’ve increased payments up to the 50 per cent level of protection, on the basis of our original one-off valuation methodology, for all pensioners for whom the effect of the cap alone – either the standard assistance cap, or the long service cap – brought them below the 50 per cent minimum and who’ve sent us the information we asked for. There are some capped pensioners who we’ve assessed as due an increase, but we need them to send us information before we can pay it. 

We’ve also increased payments up to the 50 per cent level of protection for capped pensioners for whom the effect of the cap alone didn’t take them below the 50 per cent minimum but, when combined with other factors, do fall below the threshold. 

Are there other members who might still be due an increase?

Yes. There are members who weren’t subject to the cap but whose benefits will need to be increased to bring them up to the 50% level of protection as a result of other factors.  

What are these other factors?

These other factors include:

  • If the annual increases a member would have received under their former scheme would have been significantly more than the annual increases which apply under the FAS
  • Differences between their former scheme’s benefit structure and the FAS’s benefit structure, e.g. spouse’s benefits

It’s usually a combination of these other factors which leads to the requirement for an increase. 

Will those other members receive their increase now you’ve got the decision from the Court of Appeal? When will they get it?

We’ve already been collecting data and working on a model to calculate the increases due. We hope to be able to pay the increases due in the majority of cases by December 2022. 

It’ll take a bit longer to process if you have more complicated circumstances. 

I’ve already received an increase in my assistance, but not any arrears. When will I get my arrears?

We expect to pay arrears to all FAS members who’ve already received an increase in their monthly assistance by the end of 2021. 

I’ve been told I wasn’t due an increase in my assistance, but was entitled to arrears. When will I get my arrears?

We expect to pay your arrears by the end of 2021. 

When arrears are paid, will they be taxed?

When we pay your arrears we’ll write to let you know how they’ll be taxed. 

When arrears are paid, will they include interest?

No, interest doesn’t accrue on arrears of FAS benefits.

Will there be any time limit on arrears of the 50 per cent increase?

We are the scheme manager for FAS on behalf of DWP and administer according to their instructions. DWP is still considering whether to apply a 6-year time limit to the payment of arrears for FAS members. So for now, we’ll limit arrears.

I’ve already sent you information about my former scheme benefits. Will I have to send you this again?

No, you won’t need to resend this information. 

I’m not affected by the FAS cap and you’ve not written to me about this issue before, although I think I’m due an increase. Will you write to me asking me for additional information?

If you are in the group of members who are below the 50 per cent minimum level of protection only because of factors other than the cap, we may not write to you at all until we have completed your calculations. This is because we expect we’ll have collected sufficient data to be able to make these calculations.

If I’m due an increase, can I take some of it as a tax-free lump sum?

The majority of FAS members won’t be eligible to take some of their increase as a tax-free lump sum, but if you are eligible, we’ll let you know.

I’m due to retire soon. Can I have a new illustration, to show what I would receive following any increase I might be due?

Any retirement illustrations we give you will be based on your benefits before the ‘Hampshire’ increase has been applied.

Once our new calculation model has been built later this year, we’ll then check you are receiving at least 50% of the value of your former scheme pension and increase your assistance if you’re not.

I’m deferred and won’t be retiring for some time. Will I be affected by the Hampshire ruling, and if so will I be informed of any change in my benefits?

If we think you’re affected by the ruling, we’ll write to you nearer to your retirement if we need more information to carry out our checks. You don’t need to contact us.

If you ask us for a retirement illustration before we contact you, the illustration we give you will be based on your benefits before the ‘Hampshire’ increase has been applied.

Once you’re closer to retiring, we’ll be able to make sure you’ll be receiving at least 50 per cent of the value of your former scheme benefit.

If I die before my increase is paid, will the arrears be paid to my estate?

Yes, any member who would have been eligible for an increase to their assistance but has passed away, would still be eligible to receive the arrears due up to the date of death.

In addition, any survivors receiving assistance following the member’s death will receive an increase to their payments.

Questions about the compensation cap

Does the ruling also apply to the FAS cap?

No, the FAS cap is not affected by this ruling.

Questions about other court cases

I’ve heard there was another case at the CJEU, PSV v Gunther Bauer. Did this affect the amount of assistance you pay?

The December 2019 ECJ judgment in the case of PSV v Gunther Bauer restated that, as a minimum, every individual must receive at least 50% of the value of their accrued benefits. 

We consider that the implementation methodology we announced following the ECJ’s judgment in Hampshire, which will make sure that all our members receive at least 50% of the value of their accrued benefits, meets this requirement. 

There are other details of the judgment that we’re working through with the Department for Work and Pensions.  In the meantime, we’ll continue to make payments in line with the existing levels.

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