Pension Protection Fund · CAS-53012-H6M5

CAS-53012-H6M5

PPF Ombudsman’s Determination Applicant Mr G

Scheme Pension Protection Fund (PPF)

Respondent The Board Pension Protection Fund (the Board)

Outcome

Complaint summary

Background information, including submissions from the parties The sequence of events is not in dispute, so I have only set out the salient points. I acknowledge there were other exchanges of information between all the parties.

On 8 November 2012, a qualifying insolvency event occurred in relation to the sponsoring employer, AEA Technology Plc, triggering a PPF assessment period for the AET Scheme.

In July 2016, the AET Scheme transferred to the PPF. From then on the Board paid Mr G PPF compensation in accordance with Schedule 7 of The Pensions Act 2004 (the PA’04).

Relevant extracts from the PA’04 are provided in the Appendix. 1 CAS-53012-H6M5

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Adjudicator’s Opinion

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Mr G did not accept the Adjudicator’s Opinion and the complaint was passed to me to consider. Mr G has provided his further comments which do not change the outcome. I agree with the Adjudicator’s Opinion and note the additional points raised by Mr G.

Mr G’s further submissions

• A December 2018 reply to his letter of complaint about PPF inflation to the Work and Pensions Select Committee stated that the “Labour Government set up the PPF to pay a meaningful level of compensation…” The PPF’s Stage One response to his maladministration complaint stated “The PPF pay increases in line with legislation set by the Government. The increases you’re eligible to receive must be in line with inflation, up to 2.5%, as per Government law.” So, the Government’s intention is clear. PPF compensation should be at a “meaningful level” and increases paid “in line with inflation, at present up to 2.5% per annum”.

• His total PPF compensation is not at a meaningful level and increases are not in line with inflation up to 2.5% per annum. Two-thirds of his pension contributions were paid before 1997. His PPF payments are now 23% below the promised pension he earned before 6 April 1997. He has suffered a significant and cumulative loss. How can he be suffering this and yet still be receiving a meaningful level of compensation?

• At the time of the Parliamentary debates on the PA’04, Andrew Smith MP, the then Secretary of State for Work and Pensions, stated that “the PPF is an insurance scheme for pensions, so it should obey the same rules as private sector insurance schemes”.

• The PPF call their payments ‘compensation’. Compensation should return the insured party to the position that they were originally in.

• The PPF does not maintain a retirement income that is 90% of the promised pension because of the poor inflation protection in the PPF. Here again the PPF rules do not meet the Government’s intentions. The PPF Ombudsman’s remit gives him the power to correct this injustice.

• In April 2010, Pensions Minister Steve Webb said:

1 Regulation 14, The Pension Protection Fund (Investigation by PPF Ombudsman of Complaints of

Maladministration) Regulations 2005 (SI2005/2025) (as amended). 4 CAS-53012-H6M5 “We are very clear that all accrued rights should be honoured: a pension promise made should be a pension promise kept. Therefore, we would not make any changes to pension rights that have already been built up. I have confirmed that I regard accrued index-linked rights as protected.”

• This statement is directly contradicted by the PPF rule that no inflation updates are given on pension contributions made before 1997.

• The PPF rule means that those who paid for inflation protection before 1997 now receive a much lower proportion of their earned pension than the less prudent. Or, putting it another way, the pre-97 rule obliges the prudent to subsidise the PPF compensation of the less prudent. This is perverse, unfair, and unjust.

• Why is the PPF Ombudsman not exercising his power to correct this injustice?

• The sections from Schedule 7 of the PA’04, provided in the Appendix of the Adjudicator’s Opinion, refer to the determination of the annual increase in periodic compensation. There is no mention how a compensation award that was unjust, when first awarded, can be corrected. So, the sections provided do not relate to his case.

• The PPF’s assets have increased by £900 million this year and could correct his unjust situation if the PPF wanted to.

• Section 214(d) of the PA’04, gives the PPF Ombudsman power to direct the Board to pay compensation to a PPF member who has been treated unjustly, like himself.

• The PA’04, enables the Board to ask the Government for a rule change, when there is obvious injustice.

PPF Ombudsman’s decision Mr G says that the PPF is an insurance scheme. He bases this on a statement made during the PA’04 debates by Andrew Smith MP, then the Secretary of State for Works and Pensions, that “the PPF is an insurance scheme for pensions…” But Mr Smith was using the word insurance in a wider context. Unlike an insurance scheme, the PPF pays neither a sum insured, nor a sum assured.

The PPF is a compensation scheme. As the Adjudicator explained, the PPF pays members compensation when their pension scheme cannot pay the benefits promised, and the amount and the terms and conditions under which it is paid are set out in the PA’04 and the Compensation Regulations.

5 CAS-53012-H6M5 The largest part of Mr G’s pension was accrued in respect of pensionable service completed before 6 April 1997. So, annual increases do not apply to this part of his pension in payment.

Mr G says this is perverse, unfair, and unjust. Nonetheless, Mr G is receiving PPF compensation in accordance with the prevailing legislation.

Mr G says I have the power to direct the Board to pay compensation to a PPF member who has been treated unjustly, like himself. But this power only arises where I find a decision by the Board has not been reached correctly. That is not the case here.

Anthony Arter

Pension Protection Fund Ombudsman 14 December 2021

6 CAS-53012-H6M5 Appendix Schedule 7 of The Pensions Act 2004

“(1) This paragraph provides for the increases mentioned in sub-paragraph (3)(b)[ 2] of paragraphs 3[ 3]…

(2) Where a person is entitled to periodic compensation…, he is entitled, on the indexation date, to an increase under this paragraph of—

(a) the appropriate percentage of the amount of the underlying rate immediately before that date, …

(3) In sub-paragraph (2)—

• “appropriate percentage” means the lesser of—

o (a) the percentage increase in the general level of prices in Great Britain for the period of 12 months ending with the 31st May last falling before the indexation date, and o (b) 2.5%;

• “indexation date” means—

o (a) the 1st January next falling after a person first becomes entitled to the periodic compensation, and o (b) each subsequent 1st January during his lifetime;

• “underlying rate” means, in the case of periodic compensation under paragraph 3…, the aggregate of—

o (a) so much of the amount mentioned in sub-paragraph (3)(a) of the paragraph in question as is attributable to post-1997 service, and o (b) the amount within sub-paragraph (3)(b) of that paragraph immediately before the indexation date. …

(3A) For the purposes of paragraph (a) of the definition of “appropriate percentage” in sub-paragraph (3), the Secretary of State may (from time to time) decide, as the Secretary of State thinks fit, the manner in which percentage increases in the general level of prices in Great Britain are to be determined.

(3B) The Secretary of State must publish any decision made under sub-paragraph (3A).

2 Sub-paragraph 3(b) states: “any increases under paragraph 28 (annual increases in periodic

compensation).”

3 Pensions in payment.

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