BALPA is the professional association and registered trade union established to represent the interests of all UK pilots
John Stembridge-King
Head of Organisation
In late June we won a significant victory at the High Court against the Pension Protection Fund (PPF). But why did we challenge the PPF, what would it mean for our members and how did we prevail.

The PPF is a Government-backed fund which protects members of a pension fund if their defined benefit scheme becomes insolvent – usually when the company goes into administration. This is what happened to pilots who flew for Monarch and bmi in recent years. 

The PPF is a thoroughly good thing, and it is important that it exists, especially right now when so many companies up and down the country are facing an unsure future.

Under the requirement of UK domestic legislation (Pensions Act 2004) the PPF applies a cap on the compensation paid to individuals.  The ‘compensation cap’ meant that there was a limit to the amount of pension any person in the scheme could receive. In plain terms, a large number of our pilots would not receive the pension they had expected, planned for and saved for over many years. The cap was designed so as to ensure that executives could not manipulate entry into the PPF and still receive large pensions – but it was hitting professional workers too.

BALPA campaigning to abolish the cap


We have been campaigning to change this since 2012 when the former bmi pension scheme entered the PPF and over 100 members were affected by the compensation cap.  In 2014 a further group of around 50 Monarch members was affected by the cap when the former Monarch DB pension scheme also entered the PPF.  A number of ex-Thomas Cook members are also indirectly affected as the former TCX DB scheme is likely to be wound-up with benefit restrictions determined by reference to PPF levels of compensation including the cap.

Some key events:

2018 Hampshire v PPF legal case:  
The European Court of Justice (ECJ) determined that a UK employee (Mr Grenville Hampshire) was entitled to receive at least 50% of his expected pension after his employer became insolvent and he lost more than half of his final salary pension due to the PPF compensation cap.  Mr Hampshire was employed as a senior manager by a company called Turner & Newall and lost 67% of his pension due to the PPF compensation cap.  Mr Hampshire successfully argued that this was unlawful under the EU Insolvency Directive.  In its judgment, the ECJ agreed with Mr Hampshire and determined that he should receive at least 50% of his expected pension.  Although Mr Hampshire is not a BALPA member, we were in close contact with his legal team given the impact this case would have on BALPA members.  

2019 BALPA application for judicial review
Building on the successful Hampshire case, BALPA then submitted an application for judicial review on behalf of affected ex-BMI and ex-Monarch members.  The purpose of this legal action was to:

Challenge the compensation cap itself as unlawful
We argued that the impact of the Hampshire judgment was more far-reaching than just ensuring that members receive at least 50% of their expected pension.  In our view, the judgment meant that the PPF compensation cap itself should no longer apply because it had been established by the ECJ as being contrary to the EU Insolvency Directive and the principle of proportionality.  We also argued that the compensation cap should be disapplied because it constituted unlawful discrimination on grounds of age contrary to EU law.

Secure on-going checks as opposed to the PPF’s “one-off” calculation method
We also argued that the Hampshire judgment meant that the PPF’s “one-off” method for calculating any uplift payments was wrong and contrary to the ECJ’s decision.  This was because the Hampshire judgment confirmed that affected ex-BMI and ex-Monarch members each have a clear right to receive at least 50% of their expected pension scheme benefits (including pension increases in deferment and retirement) and the PPF’s proposed “one-off” method for calculating uplift payments would not necessarily guarantee this 50% minimum throughout an individual’s retirement.  For example, depending on inflation rates and/or life expectancy, a member could, during the course of their retirement, end up receiving less than 50% of their expected pension.  To rectify this, we argued that an on-going mechanism for calculating compensation uplifts would be required, not just a “one-off” method.

Following a four-day hearing at the High Court in May 2020, we are very pleased to say that the Court agreed with us on both the above points and determined that:

1.    The compensation cap was unlawful on grounds of age discrimination and must be disapplied.  Pending any change in the law, the position is that the PPF should have paid (and should still be paying) compensation equivalent to 90% of the member’s expected pension (for those who were below their normal pension age when their DB scheme entered the PPF);
 
2.    A member is entitled to receive at least 50% of his actual entitlement, not 50% of an actuarially estimated figure.  The Court therefore confirmed that the system would need to ensure that the calculations can be adjusted if a member is in fact at risk of receiving less than 50%.  However, this may now be a largely academic point given the disapplication of the cap (and the starting assumption that members are entitled to 90% of their expected pension, if below normal pension age when their DB scheme entered the PPF); and
 
3.    The Court also agreed with us in relation to dependants’ benefits, finding that the PPF will need to ensure that dependants receive at least 50% of the pension the member would have received under the original pension scheme rules.

We are hopeful there will not be an appeal and that the Government and the PPF will accept the judgment of the High Court. We are very proud to have deployed significant resources, time and energy in securing this result and we are very pleased a large number of members will now see far more of the pension they  worked hard for many years to achieve. 

You can read the High Court’s judgment in full here

 

Posted on 08 July 2020

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