In 2018, the Court of Justice of the European Union (ECJ or CJEU) ruled in the Hampshire case 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 per cent 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 Hampshire requirement for members to receive 50 per cent 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 approach 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 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 per cent minimum. We’ve now started work to implement the judgment.
Click on the relevant questions below to find out what we're doing and what it means for you.
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 compensation 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?
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% 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?
What do I do if I’ve been paid too much for the Hampshire Uplift?
Questions about the compensation cap
Will you remove my cap now, and also pay me the arrears I’m due?
Will you remove the cap from all members at the same time?
How are you prioritising the process?
Do I need to contact you to make a claim for any arrears of what I lost due to the cap? Will there be a time limit?
Can I take some of my increase as a tax-free lump sum?
When arrears are paid, will they be taxed?
I’ve not yet retired, but before this ruling would have been capped when I did so. What does this mean for me?
Questions on other court cases
I’ve heard there was another case at the CJEU, PSV v Gunther Bauer. Did this affect the amount of compensation you pay?
Does the July 2021 Court of Appeal judgment affect the 90 per cent measure applied to compensation for those below normal retirement age when their employer failed?
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?
We're running a one-off valuation exercise to determine if the total actuarial value of your compensation 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 compensation 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 cap or the long service cap - brought them below the 50 per cent minimum and who’ve sent us the information we asked for.
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, they do fall below the threshold.
As we work to disapply the cap, some of these pensioners will be due a further increase.
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 PPF
- Differences between their former scheme’s benefit structure and the PPF’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.
When will I get my arrears?
If you’re a capped pensioner, because we’re removing your cap you probably won’t fall below the 50% requirement any more. But you’ll get arrears of your uncapped compensation (see section below).
If you’re not capped, but are affected by other factors, you’ll get your arrears at the same time as we increase your compensation.
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?
Yes. We’ll calculate the interest due at the rate as prescribed in legislation.
Will there be any time limit on arrears of the 50% increase?
The Board has confirmed that we will not put a time limit on these payments. We’ll pay arrears from the time your scheme entered PPF assessment, or the date you retired if later.
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 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’re in the group of members who are below the 50% 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?
This will depend on your circumstances. If you have the option to take part of your increase as a lump sum, we’ll write to you about this.
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?
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 compensation 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% 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 compensation but has passed away, would still be eligible to receive the arrears due up to the date of death.
In addition, any survivors receiving compensation following the member’s death will receive an increase to their payments.
What do I do if I’ve been paid too much for the Hampshire Uplift?
We have recently found that for some members, there was a mistake with the uplift we paid. This means these members have been overpaid.
If this applies to you, we will write to you. Our letter will explain how much you’ve been overpaid, when you received the overpayments, and what your correct annual compensation will be going forward. It also includes details of how to repay the assistance you’ve been overpaid via bank transfer to the PPF, and what to do if you cannot repay this in one lump sum.
If you have any questions about verifying whether this letter has been sent by us, please contact the member services team on 0330 123 2222 or +44 (0)20 8633 4902 if you are calling from overseas.
Questions about the compensation cap
Will you remove my cap now, and also pay me the arrears I’m due?
In October 2021, we started writing to all existing capped PPF pensioners who retired after their scheme entered PPF assessment to gather information about their Lifetime Allowance. The amount we’re able to pay will depend on your Lifetime Allowance position.
We’re working hard to progress this work as quickly as we can, and we’ve made good progress gathering the information we need to help us make the complex individual calculations to remove the cap. We’ve also been developing an automated system which will carry out these calculations for us, and when its live, it will significantly speed this process up.
However, despite our best efforts, our progress making these calculations has been slower than we’d originally hoped, and we thank you for your understanding and patience.
While we’ve already started making payments to some affected members, we expect the majority of affected members will see their compensation increased and arrears paid in the second half of 2022.
The Board has confirmed that we will not put a time limit on these payments. We’ll pay arrears from the time the cap was applied to your compensation.
Read our recent correspondence with PPF capped members here.
Will you remove the cap from all members at the same time?
No. The calculation to remove the cap isn’t straightforward for the majority of capped members.
For example, there are many cases where we don’t have the historical member data needed to proceed with the calculations. This is because the PPF wasn’t set up to replicate full scheme benefits – so when your scheme transferred into us, we only received the data necessary to calculate compensation in line with legislation.
Also, some of the information we’ve received is incorrect or appears to conflict with what we have on record. This means we’ve had to recheck the data for accuracy and contact third parties and members again. Where this data isn’t available, we’ll need to make assumptions.
There's also a range of tax implications which complicate matters for individual calculations. This isn't a usual process and we need to make sure we do it correctly. For example – our decision to offer some members the option to take part of their uncapping increase as a lump sum (where the maximum cash allowance has not already been taken), and to pay any resulting tax charges, has built in significant complexity.
Every member has a unique set of circumstances and as a result, we need to undertake complex and time-consuming pension and tax calculations on an individual basis.
We plan to pay the majority of members by the end of 2022.
How are you prioritising the process?
The order in which we’ll uncap members’ compensation and pay arrears due is:
- Those who’ve retired within the last year (to avoid triggering tax charges)
- Those whom we consider most affected by the removal of the cap – we’ll judge this by reference to whether a member received an interim Hampshire increase, and the length of time since retirement or assessment date, whichever is later
- Those who didn’t receive an interim Hampshire increase but for whom we have accurate data
- Everyone else
Do I need to contact you to make a claim for any arrears of what I lost due to the cap? Will there be a time limit on how much arrears you pay?
You don’t need to contact us.
The Board has confirmed that we will not put a time limit on these payments. We’ll pay arrears from the time the cap was applied to your compensation.
Can I take some of my increase as a tax-free lump sum?
If you retired after the date on which your scheme entered a PPF assessment period, you’ll have the option to take part of the increase to your compensation as a result of the disapplication of the cap as a lump sum.
If HMRC treats some or all of the lump sum as an unauthorised payment, we intend where appropriate to pay some or all of the unauthorised payments charges that would otherwise be payable by members, so they’re returned to the position they’d have been in if they’d never been capped. In order to do this, we need to understand whether there would have been any tax charges (including lifetime allowance charges) payable by the members if their benefits hadn’t been capped when they retired. If there would, we’ll take this into account when working out the amount of the unauthorised payment charge that we’ll pay on the member’s behalf.
Additionally, for members whose benefits exceed the lifetime allowance following the disapplication of the cap, some or all of the lump sum may be subject to a lifetime allowance tax charge, which members will be responsible for meeting. However, we’ve agreed we’ll reimburse members for part or all of the Lifetime Allowance tax charges in some situations.
We’ll write to you with more detail about your options.
Read more about the LTA here
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.
I’ve not yet retired, but before this ruling would have been capped when I did so. What does this mean for me?
We’re not applying the cap for future retirees.
Questions on other court cases
I’ve heard there was another case at the CJEU, PSV v Gunther Bauer. Did this affect the amount of compensation 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.
Does the July 2021 Court of Appeal judgment affect the 90% measure applied to compensation for those below normal retirement age when their employer failed?
The 90% measure wasn’t tested in this case although the Administrative Court did comment that the impact on those affected, although significant, doesn’t render the measure inappropriate or unnecessary.
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